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Working Capital Finance
Working capital loans for growing businesses
Working capital finance is a form of business funding that boosts cash availability and supports financial stability. It is typically used for growth or development projects that require additional working capital to help them succeed.
This might include a large new contract or commencing a development project, for example, when additional working capital is needed to fund labour or purchase costs and aid in its smooth running.
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What is working capital?
Working capital is the amount a business has available to spend. It typically consists of cash in the bank, assets that can quickly be converted into cash, such as debtor invoices, and expenses that fall due within a year.
The business relies on working capital to function at a day-to-day level so the importance of availability cannot be underestimated. When a business undertakes growth projects or takes on new clients, current availability may be insufficient to meet the new demands.
Alternatively, businesses that trade seasonally might require working capital finance to cover fixed operating costs during out-of-season periods when sales are lower.
What are working capital loans?
Working capital loans are short-term finance solutions that boost working capital, and are typically repaid within a year. They fund day-to-day costs such as wages, utilities, and rent, rather than purchasing assets like machinery or equipment.
This type of finance can include a range of products, and the most suitable depends on factors including the type and stage of business and level of funding required. UK Business Finance can help you find the right working capital finance solution. We cover the whole of the market and understand the criteria of all the lenders in the UK.
Different types of working capital finance
Working capital finance products include but are not limited to:
Secured or unsecured loans
Secured loans require an asset to be put forward as collateral, which in some instances can be a limiting factor with regard to funding levels. Unsecured loans do not require collateral but the lender may need a personal guarantee from the director(s). Credit rating is also more important when security is not provided.
Revolving credit
Revolving credit is similar in nature to a bank overdraft in that a credit limit is set and the facility can be used and repaid at any time. Money paid back can be used again, which offers valuable flexibility for businesses that require additional working capital sporadically.
Invoice finance
Invoice finance utilises the value held in the sales ledger. The financing company advances a proportion of each invoice – typically 80-90 percent within 24 hours of invoice issue – providing the business with a steady flow of working capital.
Asset refinancing
This involves selling a balance sheet asset to a financier, and then renting it back from them with no interruption in usage. Once all the instalments are made the business gains full ownership again.
What are the advantages of taking out working capital finance?
- There are options available that do not require collateral
- It offers valuable flexibility to seasonal businesses
- It underpins the success of growth projects
- Working capital funding smoothes cash flow
- It may be quick to access when compared with other types of borrowing
Applying for working capital finance
UK Business Finance are commercial finance brokers and can help you secure working capital finance. We compare all the market to find the best working capital finance solution based on your stage of business, your industry, and the level of funding you require.
Our services are free and carry no-obligation, so get in touch to find out how working capital finance can give your cash flow a boost.
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Top Finance Tips
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Can I use property as security for a business loan?
Secured business loans require one or more assets to be put forward as collateral. This protects the lender from financial loss if a company cannot afford to keep up with the repayments at any stage.
Does my company have a credit score and how can I improve it?
Limited companies do have credit scores and they’re used for a similar purpose as individual credit ratings. Lenders use them as a guide to creditworthiness, but a business credit score is also useful for suppliers and investors to gain insight into your company’s financial situation.
What is bad debt and how can I protect my company?
Bad debt presents an insidious threat to the financial stability of your business. It places strain on your working capital and creates uncertainty in paying your bills, but this can be addressed successfully if you take proactive steps to protect your company.
What is the difference between open and closed bridging loans?
Bridging loans are short-term forms of secured finance that literally ‘bridge’ a gap between funds going out of a business and monies coming in.