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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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We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.