What is a working capital loan?
A working capital loan is a business loan that is used to finance a company’s everyday expenses and operations, such as utility bills and rent. Working capital loans are not used to buy long-term assets or long-term investments, rather they are used to cover a business’ short-term operational expenses.
How does a working capital loan work?
A number of factors impact a business’ working capital, but research shows that just under 30% of all new UK startups fail due to an insufficient flow. A working capital loan can put money back into your business, helping to improve cash flow and allow daily operations to keep running, business as usual.
- Receive a boost during periods of reduced business activity
- Better manage and maintain your business’ working capital
- Make small, manageable monthly payments over a short borrowing term
- Short repayments, money is typically borrowed over a 12 month period
- Cover operational needs, such as salary payments and inventory purchases
- Rectify business emergencies just 24 hours from approval
What are the advantages of a working capital loan?
The advantage of a working capital loan is that they’re able to help businesses that experience cash flow problems. Working capital helps with covering everyday costs such as rent and bills. It is especially useful for seasonal businesses to manage their busy and quiet periods of trading.
Advantages of a working capital loan
Described as oxygen to a business, working capital is crucial to a business’ success. Without it, it can be a struggle to undertake the normal activities that are essential to staying in business. All businesses experience shortfalls from time to time, which is why our working capital loans have been designed to meet the needs of these everyday costs.
- Access finance fast: Because working capital loans are a form of short-term financing, they are much quicker to get approved for. You could receive your loan just 24 hours from approval.
- No collateral required: Working capital loans are known for requiring very little to no collateral when taking out the loan, which means that your valuable business assets aren’t put at any risk.
- Short repayment periods: Because the money loaned is designed for the short-term, businesses benefit from shorter repayment periods, usually lasting under or up to 1 year. This means that you can pay the loan off quickly and avoid making repayments with interest for years and years to come.
- Maintain ownership of business decisions: With no outside influence from investors, a working capital loan can be used however you see best for your business.
Can I compare working capital loans?
Yes. With the help of our commercial directors you are able to compare types of working capital lenders to get the best rate for your company. You wouldn’t take out a personal insurance plan without comparing it to another (we hope), so why should you be expected to do the same with your business? If you aren’t sure a working capital loan is for you, why not consider our popular merchant cash advance product?
- Merchant Cash Advance
A merchant cash advance is an innovative way of boosting working capital. It gets its name from being an appropriate funding option for merchants, businesses like retailers, pubs, cafes and restaurants. It differs from a loan because it is essentially an advance on the revenue your business is predicted to generate through future debit and credit card sales. Because you only pay back a percentage of your earnings, repayments stay nicely in sync with your cash flow.
How can I get a working capital loan?
You can get a working capital loan either by applying to an online lender or credit broker, or via high street bank. A working capital unsecured loan will enable you to instantly receive an amount of money of your choice up to £500,000.
Before the loan agreement is signed, an interest rate and loan term will be mutually agreed. After receiving your loan, you will begin to make small monthly repayments to the lender. Because our loans are unsecured, you aren’t required to provide collateral to the lender as security. The process couldn’t be easier:
How to apply for a working capital loan.
Step One: Apply Online
Complete our simple online application form. We will ask for your business’ credentials, including the number of months or years you have been trading, your average monthly turnover and the amount of working capital you need.
Step Two: Get a Quote
Your personal details will enable us to quickly get in touch with you about your term loan. After providing your phone number and email address all that is left for you to do is read our terms and conditions before clicking ‘get my quote’.
Step Three: Review
Your application will be processed and reviewed by one of our dedicated account managers, who will help to find the most suitable lender to provide working capital.
Step Four: Check the Terms and Conditions
The lender will present you with the loan’s terms of agreement. This is your chance to discuss any questions you have before signing on the dotted line.
Step Five: Money Transferred to your Account
In just 24 hours from signing you could receive the funds in your business bank account.
How can I use a working capital loan?
Working capital loans are a simple and suitable way of accessing capital for your business. The beauty of this funding product is that it can be employed in a variety of ways. How you choose to use the loan is entirely up to you, and will depend on your industry and individual circumstances. The top ten ways to use a working capital loan are:
- Manage cash flow
- Bridge delayed payments
- Fund important purchases
- Repairs, updates and upgrades
- Cover seasonal shortfalls
- Unexpected expenses and business emergencies
- Expansion purposes
- Sufficient inventory
- Finance daily operations
Why choose us for a working capital loan vs. our competitors?
We work with businesses day in, day out and as a result know all too well just how important having enough capital is. In fact it’s more than important, and that’s why we’re here. Our commercial directors pride themselves on finding the most competitive rates on the market for clients, keeping the amount you pay back low. We offer our clients:
- No application or set up fees, no hidden costs
- Unsecured funding options that keep business assets safe
- Tailored repayment plans to suit individual business needs
- A 1-month cooling off period to ensure you are confident in your decision
- Trusted lenders that are authorised and regulated by the Financial Conduct Authority
What is working capital?
Working capital is defined as the amount of money a business can safely spend to cover daily operations. Also known as net working capital (NWC), it is the difference between a business’s current assets and liabilities. It is used to measure a business’s liquidity and short-term financial growth.
Without considerable working capital, a business will be hard pushed to invest and grow.
- Current assets include: inventory, cash, accounts receivable and assets expected to be liquidated in less than a year
- Current liabilities comprise: accounts payable, wages, taxes payable and any current long term debts
- When a business’ current liabilities exceed current assets a business finds itself in financial difficulty and in the worst case could be at risk of bankruptcy.
Can I improve working capital?
Certain businesses require more working capital for their operations to run smoothly. Companies in retail, wholesale and manufacturing that have a lot of physical inventory are an example of this. As well as these industries, seasonal small businesses tend to need high working capital for times in the year when they are at their busiest.
The length of a business’s operating cycle can also impact working capital. In an ideal world, a business can pay off short-term expenses with revenue from its business sales. Where a business takes longer to create and sell products, working capital is required to cover costs incurred in the interim.
With this being said, there are ways that businesses can work to increase working capital:
- Increasing business profits
- Considering a short-term working capital loan
- Selling long-term assets for cash
- Ensure current assets are converted to cash in a timely manner
How do you get working capital with bad credit?
An analysis of a business’ working capital can provide insight into how well or poorly a company manages its finances, often posing a business as higher risk in the eyes of a lender. As well as this, where a lender sees that a business has had issues repaying past debts, doubt grows making approval for funding unlikely, but not impossible.
It is true that your credit history can impact the overall interest rate charged on the loan, so before considering this you need to be 100% that you will be able to upkeep repayments and not fall further into debt. You can work to improve your credit score before contemplating a bad credit business loan.
Frequently Asked Questions
If we haven’t answered all of your questions about working capital loans, then make sure to look at some of the most frequently asked questions below.
What is a working capital loan?
A working capital loan is a loan which is used to help finance the day to day expenses and operations of a business. They’re designed to be flexible and short-term to deal with the immediate needs of a business. They come in the form of unsecured and secured loans.
How can I get a working capital loan?
You can get a working capital loan by submitting an online application. The online application will require you to provide basic details about your business, as well as personal information about yourself. The application will then be assessed. If successful, a broker will be in touch to discuss the next stages of your application, such as loan options and various terms and conditions.
Why choose SME Loans for a working capital loan?
At SME Loans, we understand how important it is for a business to receive working capital. That’s why we work with a panel of trusted lenders who offer competitive rates to help suit you and your business. Our application form is so easy to fill out that it can be submitted in a matter of minutes.
In this article we look at the benefits of online banking. We also compare some of the best online business accounts currently on the market in the UK.…Keep reading
We find out more about luxe nightwear and leisurewear brand Cucumber Clothing from co-founder Nancy Zeffman. 100% British made, produced from wicken fabrics.…Keep reading