Working Capital: Finance with loan or bring as cash?

April 07, 2025

by a searcher from University of Miami in Indianapolis, IN, USA

After reading Erica's excellent post on Working Capital [https://www.searchfunder.com/post/working-capital-for-dummies] I gave some more thought to the working capital needs of my own deal. I'm interested in others' thoughts on financing vs. using cash to fill a WC gap in a deal.

I'm under LOI to acquire a demolition and environmental remediation business. The accepted offer is an EV of $3.35M (3.1x EBITDA) plus $700K Working Capital.

My QoE provider's recommendation is $1.25M WC, which is###-###-#### months' worth. In this scenario with high WC needs, is it better to get a lender to finance additional WC as part of the loan (if the business supports it), or to use your own cash (if you have it?).

The advice I've received is to get as much WC as possible, more than I think I'll need. I'm comfortable with $1.25M but not sure the best way to get there.

Thanks in advance for your thoughts.

Reply by an intermediary
from City University of New York, Bernard M. Baruch College in San Francisco Bay Area, CA, USA

I am a business owner. My recommendation is to get a clear picture from the seller on how many months of cash you will need on hand to finance the day to day business. In my case, working capital is only a few weeks as it is the difference of terms I must give to my retailers and terms I get from the manufacturer. Depending on the business you are buying, there are companies that finance your receivables(factoring companies) and in my case one major retailer that will pay a month early with a small discount. I've been lucky as I am self financed. When you are negotiating with a seller to buy a business it all goes into the calculation of what the business is worth and what the buyer can afford to spend and seller what they will accept. All costs associated with doing business should be laid out on the table. There will be no deal unless it's a win-win and both parties can live with the terms. Both sides need to be on the same page

Reply by a lender
from University of Southern California in Los Angeles, CA, USA

I think###-###-#### months seems excessive working capital unless I am missing something. If you can get a LOC sure but that much permanent working capital is going to be expensive. I’d love to help you find the right SBA lender for this deal. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. Depending on the DSCR, I think this deal might qualify for pristine pricing (7.99% fixed). You can reach me here or directly at redacted You can also click here to schedule a meeting with me: https://cal.com/ishan-jetley-3d73m8/30min. Look forward to chatting!

+9 more replies.

Join the discussion