All recipients of SBA loans must be able to reasonably demonstrate their ability to repay the intended obligation from the business operation. For an existing business wanting to buy a building where the mortgage payment will not exceed historical rent, the process is relatively easy. In this case, the funds used to pay the rent will be used to pay the mortgage. However, for a new or expanding business with anticipated revenues and expenses that exceed past performance, the necessity for the lender to understand all the assumptions on how these revenues will be generated is paramount to loan approval. Current assets are the most liquid and most easily convertible to cash of all assets.
Current liabilities are obligations due within one year.
Therefore, working capital measures what is available to pay a company's current debts. It also represents the cushion or margin of protection a company can give its short-term creditors. Working capital is essential for a company to meet its continuing operational needs. Its adequacy influences the firm's ability to meet its trade and short-term debt obligations as well as to remain financially viable. To the extent that worthwhile assets are available, adequate collateral is required as security on all SBA loans.