Business finance
Working capital finance
Working capital finance covers the gap between money going out and money coming in. Wages, materials, stock and rent are due on their own schedule, and customers pay on theirs. When those two schedules do not line up, an otherwise healthy business can be short of cash while being owed plenty.
It is generally a shorter-term facility than equipment or property finance, and it is assessed differently: lenders are looking at how money moves through the business rather than at an asset they can point to.
What it is
The term covers several products rather than one. What they share is that they fund operating costs rather than a purchase, and they are usually repaid over months rather than years.
Which one suits depends on whether the gap is a one-off, a seasonal pattern you can predict, or a permanent feature of how your customers pay.
- A short-term business loan, repaid on a fixed schedule
- A line of credit you draw on only when you need it
- Invoice finance, which advances against what customers already owe you
- Trade finance, which funds stock between order and sale
How it usually works
Lenders in this space commonly assess recent trading rather than two full years of financial statements, and many will look at bank transaction data covering the last several months. That is why a business too young for a traditional bank process can sometimes still have options here.
Repayments are often more frequent than monthly, which suits a business with steady daily or weekly takings and suits a lumpy, project-based income far less well. A specialist should be matching the repayment rhythm to how your money actually arrives.
What lenders look at
The emphasis differs sharply between lenders, which is why the same business can get very different answers from two of them.
- Turnover and how consistently it arrives across the year
- Recent bank transaction history rather than only annual statements
- How long the business has traded
- Existing facilities and what is already committed
- Credit history, including recent dishonours or overdrafts
- What the funds are for and how they will be repaid
When it tends to suit
- Covering wages and materials on a job before the progress payment lands
- Buying stock ahead of a season you can see coming
- Bridging a quiet stretch you know from experience will pass
- Taking on a contract larger than your usual, without straining cash
- Meeting a tax bill without stripping the operating account
Common questions
How is this different from a line of credit?
A working capital loan is usually advanced as a lump sum and repaid on a set schedule. A line of credit sits there as a limit you draw on and repay as needed. If the need is one specific gap, a loan often suits; if it recurs unpredictably, a line of credit often does.
Do I need two years of financials?
Not for every lender. A number of them assess recent trading instead, which is often what makes options available to a younger business. What each lender requires varies, and that is part of what the specialist checks.
Will this affect my credit score?
Not the match check on this site, which involves no credit check at all. A lender may check your file later, during a formal assessment, and only with your permission.
Related finance types
See which lenders fit your business
A specialist compares lenders that work with working capital finance and explains the options in plain English. No cost, no obligation.
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