What is long-term working capital?
Long-term working capital is the amount of money that a business needs to operate its normal activities for more than one year. It is also known as fixed working capital or permanent working capital. Long-term working capital helps a business to meet its long-term goals, such as expansion, diversification, research, and development, etc. It is usually financed by long-term sources of funds, such as equity, debentures, Term Loans, retained earnings, and more. Long-term working capital is calculated by subtracting the non-current liabilities from the non-current assets of a business.
Businesses can use long-term working capital to maintain a healthy working capital or to fund their long-term growth plans.
Bajaj Finance offers long-term working capital loans up to Rs. 80 lakh that can be repaid in easy EMIs spreading across a period of 96 months.
Advantages of long-term working capital
Long-term working capital is a loan that comes with a tenure of more than 84 months. It is used to finance the permanent or fixed assets of a business, such as plants, machinery, land, buildings, etc. Some of the advantages of long-term working capital are:
- It has lower interest rates as compared to short-term loans.
- It has a longer repayment time, thus enabling a business to adjust its borrowings with its long-term plans.
- It maintains an optimum level of funds, saves interest costs, has no refinancing risk and interest rate fluctuation risk.
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Frequently asked questions
Long-term working capital is the amount of money that a business needs to operate its normal activities for more than one year.
One example of long-term working capital is the loan that a company takes to purchase a new factory or machinery that will be used for more than one year. This loan will increase the company’s current assets and non-current liabilities, and thus increase its long-term working capital.
The formula for long-term working capital is:
Long-term working capital = non-current assets - non-current liabilities
Non-current assets are the assets that are expected to provide economic benefits for more than one year, such as land, building, plant, machinery, etc. non-current liabilities are the obligations that are due after one year, such as debentures, long-term loans, deferred tax liabilities, etc.
