Guide
The working capital ratio compares what the business will collect soon with what it must pay soon. It is one of the quickest checks of short-term health.
✓ Checking what you qualify for does not affect your credit score.
Short answer: The working capital ratio is current assets divided by current liabilities. Above 1 means more is coming in soon than going out; below 1 signals pressure. Many small businesses aim for roughly 1.2 to 2, depending on the industry, and the trend matters more than any single figure.
Key facts
Related: Practical Business Funding Guides for Canadian Owners · Business Funding Requirements in Canada · Documents Needed for Business Funding in Canada · Business Funding Affordability Calculator (CAD) · Funding Readiness Score Canada: Free 30-Second Check
The working capital ratio compares what the business will collect soon with what it must pay soon. It is one of the quickest checks of short-term health.
Working capital is current assets minus current liabilities. The ratio is current assets divided by current liabilities. Current assets include cash, receivables due within a year and inventory; current liabilities include payables, tax owing and short-term debt.
A ratio above 1 means more is coming in soon than going out; below 1 signals pressure.
Many small businesses aim for a ratio between about 1.2 and 2, but it depends on the industry. A grocery store turning inventory quickly can run lower than a manufacturer with slow receivables.
The trend matters more than any single figure.
Short-term funding adds cash, a current asset, and a current liability of a larger amount because of its cost. The ratio can dip slightly even as cash improves.
If the funding buys inventory that sells quickly or equipment that raises margin, the ratio improves over the following months.
Collect receivables faster, negotiate longer supplier terms, clear slow-moving inventory and avoid using short-term money for long-term assets.
Keep tax remittances separate so they are not mistaken for available cash.
Banks often include working capital in their review and sometimes in loan covenants. Knowing your ratio before you apply helps you answer questions confidently.
Guides like this one are general education written for Canadian owners. They are most useful when you turn them into a few concrete actions with dates, and revisit them when your numbers change. If funding is part of your plan, the same preparation that makes the plan work, clear numbers and a specific purpose, also makes an application faster and stronger.
Merchant Fund Express reviews Canadian businesses in every province and territory. If you would like a specific answer for your business rather than general guidance, send a signed application and your last four months of business bank statements, or call (305) 384-8391 first to ask a question.
Reviewed by the Merchant Fund Express team on October 12, 2026. Official pages checked as of that date.
It is general education. Your file and agreements are specific, so read them and ask questions.
Gather four months of statements and write what the money is for in one sentence.
Yes. Apply once and the file is matched to the structure that fits.
Educational information only. It is not legal, tax or accounting advice.
Same-day decision. Applying takes a few minutes and will not affect your credit score.
