Working capital is the amount of cash you have available to manage and grow your business. The amount of working capital you have is generally considered to be current assets minus current liabilities. From time to time, it may not be possible to retain the necessary amount of working capital you need when potential growth opportunities arise and that’s when working capital finance can help.
“Current” business assets are those that can be used to release cash quickly, such as the sale of invoices or future card transactions. So, if you have £3,000 in your business bank account and £2,000 tied up in unpaid invoices, you essentially have £5,000 available as working capital. However, this would reduce to £3,500 if you have liabilities, such as outstanding bills, totalling £1,500.
Alternative business funding providers offer both secured business loans and unsecured business loans. If you have cash tied up in unpaid invoices, you could release the funds through invoice finance, for example. Designed to offer a short to mid-term lending option, working capital finance offers a rapid route to the cash injection your business needs.
Typical working capital finance solutions include:
For businesses that trade by invoicing customers for products and services, invoice financing has become a popular type of working capital finance. Factoring, discounting and selective invoice financing enables companies to sell their invoices to a lender who, for a fee, will release the funds before a customer has settled the balance. A percentage of the invoice value is paid immediately and, once the customer has paid the invoice, the business will receive the balance minus the lender’s fees.
If you have cash tied up in commercial assets, asset finance or asset refinancing enables you to release it as a loan. As a secured business loan, the asset acts as security against the loan. The amount available is often subject to the value of the asset offered as security; more finance could be offered for higher value assets.
A short-term unsecured business cash advance, also known as a merchant cash advance, offers retailers and merchants a fast, flexible and transparent way to source working capital. Retailers accepting credit and debit card payments via a PDQ machine can borrow against future card transactions. The value of the loan is determined by the company’s average monthly turnover of credit and debit card transactions. A percentage of future card sales is then repaid automatically to the lender at the point of sale via the merchant card machine. Business cash advances are typically repaid within nine to twelve months.
Working capital finance comes in a variety of forms and we can help you find the right solution for your business. To find out if you qualify for working capital finance, please complete our online application. One of our alternative finance partners will be in touch with a decision within 48 hours.