Working capital finance options

Working capital is what your business needs to maintain day-to-day operations.

It's the cash you have left after accounting for money coming in and out over a given period - so it's an essential part of keeping your business afloat.

It’s known as ‘working capital’ because it can be put to work immediately and is not otherwise tied up in anything long-term.

As working capital is such a vital resource for a healthy business, making sure you have the right amount of it can be a worry.

If you find your cashflow being squeezed by unforeseen circumstances, like late payments from customers, a sudden increase in utility bills, or even a sudden opportunity that you need to expand your business for, then there are a number finance options that could help resolve the problem.

If you’re considering using a financial product to support your working capital needs, it’s a good idea to obtain independent and specialist advice before entering into any agreement.

What is working capital finance?

If your company needs to finance its day-to-day expenses like payroll or inventory, you could consider working capital financing.

Working capital finance can be a great way to increase the cash available for your business.

Whether it's to take on a larger project or explore new markets, it could give you the resources you need to make big moves and expand your operations.

Working capital finance can be an invaluable tool for businesses of all sizes.

Using this kind of finance to free up cash could help you grow your business and recoup your investments in the mid-term, making it well worth it in the long run.

Different types of financing are available depending on your industry, business model, stage of development, and the balance sheet items you have.

What are the different types of working capital finance?

Looking for help with working capital financing? Options include loans, sales, assignments, guarantees, and even favourable terms from customers and vendors.

Working capital loans

Often taken out over the short or medium-term, a working capital loan can provide an injection of funding for various day to day needs.

The size of working capital loan you can get depends on various aspects of your business, but secured loans require collateral so the amount you can borrow depends on the assets you can provide as security.

You can obtain an unsecured loan, but in this case your credit rating is more important and you'll likely have to give a personal guarantee.

Read more about business loans.

Working Capital Revolver

A form of asset-based lending, a working capital revolver is a line of credit where the available amount for borrowing is linked to a business’s balance sheet.

This secured line of credit can be borrowed, repaid, and reborrowed multiple times over.

It can also be referred to as a working capital line of credit, credit facility, revolving credit facility, or a revolving loan facility.

Unsecured lines of credit are available too and are typically better suited to small businesses with the owner providing a personal guarantee, or very large businesses with strong credit histories.

Purchase Order Financing

Need help with large customer orders? You could consider purchase order financing - a loan given to your supplier by a lender for the goods your business needs.

The customer pays the lender directly, and after deducting the cost of their loan and fees, the remainder goes to you.

A key advantage of purchase order financing is that it doesn’t matter if your business has a poor credit history, which could make it a good choice for newer businesses.

Read our guide on PO Financing.

Invoice Finance

Invoice finance is another way to access capital quickly - sometimes within 24 hours.

A lender will use an unpaid invoice as security for a loan, and the exact amount you receive depends on their own risk criteria.

There are two main kinds of invoice finance: factoring and invoice discounting.

Factoring involves a lender paying you up to 90% of your invoice’s value, and they'll manage your sales ledger as well as collecting payments from customers - all while deducting the cost of their service before giving you the remaining balance.

With invoice discounting, your business still gathers payments from customers, but instead you pay a fee and discount charge (like interest) if you make use of the funding, similar to an overdraft.

Read more about Invoice Finance.

Merchant Cash Advances

Merchant cash advances are an upfront payment you get in exchange for a portion of your future daily credit/debit card receipts, instead of it being a loan.

This can be an expensive form of financing but could be an option if you process lots of credit/debit card transactions or have a limited or poor credit history.

Read our guide on merchant cash advance.

Overdrafts

A business overdraft is a line of credit on your business bank account that lets you borrow more than your own capital can cover - and you only have to pay interest on the amount you're borrowing.

You can also pay it back when your cash flow allows, though your bank could demand repayment at any time.

You can increase or reduce the limit with approval from the bank.

Read our guide to Business overdrafts.

Asset Finance

Another working capital finance option is Asset finance.

By using assets on your balance sheet as security, you can borrow money and make the most of physical assets such as debtors, stock, equipment, machinery, property, and intangible assets like IP.

Asset finance generally places few restrictions on what you spend the money on, and you can sometimes receive the money into your account in as little as four weeks.

The terms for repayment can also be fixed, meaning you have a clearer idea of your future financial obligations.

Read our guide to Asset finance.