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Working Capital Line of Credit: Best Uses for Your Business

August 26, 2022

The daily operating costs of running a company can be difficult for business owners to manage, especially when there is the constant threat of rising market costs. That’s why having access to working capital is critical to the success of any type of business.

It’s not enough to just have access to funds, though. The funds need to be deployed in the most strategic way possible. To achieve both goals of continuous access and proper use, a working capital line of credit is the ideal financial solution.

A working capital loan will help stabilize and strengthen your business while offering a dependable resource when needed most. Discover how this financing option works, some of the best uses for a working capital line of credit for your company, and why Texas Gulf Bank is the ideal partner for your business financing needs.

Ready to discuss a working capital line of credit for your business? Give us a call at 713-595-7400 to speak with one of our local loan officers!

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a working capital line of credit

Why Choose a Working Capital Line of Credit?

Business owners along the Texas Gulf Coast have seen an increased need for additional funds to cover day-to-day expenses. Taking care of year-round needs such as payroll, insurance, and other basic expenses will help free up your company to focus on primary capital expenditures such as major purchases, investments, and/or improvements to products and services.

Essentially, a working capital line of credit creates greater flexibility by providing your business with steady and reliable funding for short-term business expenses and operating costs.

In practice, a working capital loan serves as a revolving credit line that is used on an as-needed basis. Your business then repays the balance when your cash flow increases. You also retain the flexibility to borrow and repay over and over again as operational needs arise, only paying interest on the actual amount outstanding.

This business line of credit is an especially helpful resource and a financial lifeline for businesses with revenue or payment fluctuation, such as seasonal businesses or those waiting longer for customer payments to arrive.

Companies in the following industries are most likely to benefit from a working capital line of credit:

  • Retail
  • Manufacturing
  • Transportation
  • Landscaping
  • Ranching and Farming
  • Food and Beverage Production
  • Service companies

One of the primary reasons to consider a working capital line of credit is that it typically offers more favorable repayment terms than a standard business credit card or small business loan. This type of loan also includes preset limits that will prevent your company from accumulating excessive debt. The set-up ensures that you have access to funds and that the funds are utilized strategically.

There are a wide variety of ways to use the funds from a working capital loan. It’s why this lending option is a very popular choice for many business owners. Let’s unpack your options.

The Best Uses for Working Capital Lines of Credit

If your business is interested in a working capital line of credit, consider some of the best possible uses for this revolving line of funds. Applying your working capital line of credit to these specific areas will help ensure that your business always has funds on hand for unexpected expenses or daily operational costs.

1. Employee Payroll

Your employees are critical to the success of your business, which is why you should always have available funds to meet payroll deadlines. If your business is unable to meet payroll or is late paying employees, your company risks losing the people who make your business function and thrive each day.

For seasonal businesses such as retailers, landscapers, or ranchers, a working capital line of credit allows you to hire and pay the temporary employees needed to meet higher customer demands. Without access to additional funds, your business could lose valuable contracts or needed revenue from a lack of employees available to sell or manufacture goods and services.

A working capital line of credit helps ensure your company is able to meet payroll deadlines as well as any tax payments due to local, state, or federal entities. Meeting payroll obligations promotes productivity and employee retention and allows your company to stay in compliance with labor laws regarding payroll. 

2. Rent

Rent payments typically make up a large chunk of operating costs for any business. Using a working capital line of credit to cover rent payments will help your company to remain stable while focusing on revenue-generating opportunities.

If your business is relatively new with a shorter business credit history, paying rent with a revolving line of credit can help build up your credit history and score. This can provide your business with more buying power and a healthier financial standing down the line if you need access to other types of business loan options

3. Utility and Debt Payments

Working capital lines of credit allow your business to stay current with any utility or debt payments that are due during seasonal downturns or gaps in revenue intake. By having immediate access to these revolving funds, your company can avoid interruptions in utility service, which could force a temporary shutdown of your business and the loss of revenue.

In addition, using your line of credit for debt payments allows you to maintain a good payment history, which can boost your business credit score and your overall business financial standing. A working capital line of credit can allow your business to remain in good standing with all utilities and companies that carry your debt.

4. Inventory Purchases

A major advantage of having access to a working capital line of credit is that it instantly improves your company’s potential buying power. With these funds, your business is able to buy inventory in bulk to unlock supplier discounts or incentives.

In addition, a working capital line of credit can allow you to fulfill large orders for new customers without delays, make preparations in advance for busy periods of seasonal sales, and ensure that you have the resources to handle increased inventory (e.g. renting more warehouse space).

These revolving funds can allow your company to make strategic investments without sacrificing all available cash on hand, which may be better used elsewhere. 

Apply for a Working Capital Line of Credit with Texas Gulf Bank

Texas Gulf Bank is a leading provider of banking solutions for companies across the Texas Gulf Coast region. With more than 100 years of lending experience, we understand and value the needs of area businesses.

If your business is interested in a working capital line of credit, we encourage you to begin the application process to expedite the review and approval process. It is essential to document both your current spending levels and detailed projections of future spending in order to create an accurate picture of your company’s long-term cash needs.

The information we require for a working capital line of credit application includes, but is not limited to the following elements:

  • Completed and signed commercial credit line application
  • 3 most recent years of business tax returns
  • 3 most recent years of financial year-end statements
  • Current year balance sheet
  • Current year profit and loss statement
  • Current inventory report
  • Current Accounts Receivable/Account Payable report
  • 3 most recent years of personal tax returns (for all owners with at least 20% ownership)
  • 3 most recent years of personal financial statements for all loan guarantors

Once we receive your application and support documentation, we will walk you through the loan review process. We will keep you updated throughout the application process as well as explain other loan solutions and banking services that may be a great fit for your business.

Our lenders offer top-notch service and are committed to building a strong relationship with you. Reach out today to learn more about how to get started on a working capital line of credit for your business.

Visit one of our local Banking Centers to speak with a lending officer or call our support team today. We look forward to serving your business need.

All Loans Subject to Credit Approval