finance options - working capital

Working capital

Finance everyday operations with a working capital loan. 

Everything you need to know about working capital, who it's for and how it could help your business

Or give us a call today on 020 3805 8550.
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Access working capital.
So you can focus on growth.

Or give us a call on 020 3805 8550!

Features of a working capital loan

No requirement to specify the loan's purpose

Loan is paid out in days of approval

Customised to your business model

What is working capital?

Working capital is the cash and credit available to a business to meet its day to day payments and obligations, for example wages, bills and stock payments to suppliers.  It fluctuates on a daily, even hourly basis as payments are made and monies received into the company’s bank accounts.  For this reason, we often talk about a working capital cycle, as it rotates throughout the month.

But the calculation for working capital includes more than just the company’s bank and cash balances, as you’ll see below. 

What is the formula for working capital?

Working out how much working capital your business requires doesn’t have to be complicated. Simply calculate the value of your current assets including: property, vehicles, stock and cash in your bank accounts. Then subtract the total value against your current liabilities, this includes: expenses, bills, tax contributions and wages. The result of this will show you if you have enough working capital in your business to meet its demand, or if you require a working capital facility. The result of this will show you if have enough working capital in your business to meet it’s demand, or if you require a working capital facility to help meet your demands.

Who is a working capital loan for?

Taking on new employees, expanding your business premises, relocating or updating product lines can all increase operating costs dramatically.  A working capital loan is designed to allow a business to access funding for daily operational costs such as paying staff wages, paying utility bills or rent.

It can help by allowing you time and breathing space to grow your business and is not generally intended for large purchases or the procurement of long term assets.

If your business needs a working capital loan, Capitalise can match the most suitable lender to your specific requirements.  We work with leading institutional lenders who specialise in working capital loans.

why a working capital loan?

When short term funding is required quickly, a working capital loan could be the answer.

Unlike traditional bank loans, a working capital loan is an easy, hassle-free way to access capital for business expenses.  Many small and medium business owners have found this method of lending suitable to their needs.  


It could help by allowing you time and breathing space to grow your business and is not generally intended for large purchases or the procurement of long term assets.  It could also allow you the time to focus on what really matters and give your business the best possible chance of succeeding.


Working capital loans can be a suitable way to access capital for your business.

Current assets definition

Current assets are assets which the business owns and they can fluctuate.  They include trade debtors (monies that customers owe a company, also known as receivables), stock, cash and bank balances.

Current liabilities definition

Current liabilities are amounts owed by the business within the next twelve months.  They include trade creditors (due to suppliers for overheads and stock purchases, also known as payables), tax liabilities and borrowings from other companies or banks.


Working capital ratio formula (also known as a current ratio)

Working capital ratio = current assets / current liabilities 

Importance of using the working capital formula 

This working capital formula is a quick way to demonstrate whether the business is in a healthy position.  It uses balances which the company should maintain in its accounting system, and can provide the first sign of any change in financial stability.

What is a good working capital ratio?

What are the benefits of working capital?

A business needs to have access to working capital to be able to trade.  Suppliers will expect to be paid for stock bought, or employees paid wages for their hours worked.  

When a business is growing, they spend more in order to then sell more products or services.  That time difference is funded by working capital.  

The more working capital a business has, the faster they can grow.  

For example, with access to more capital, the company could pay for an advertising campaign or buy more stock, rent larger premises and recruit more staff. Without these in place, businesses cannot grow. 

If a company is relying only on its cash balances, it will only be able to grow slowly as it will need to wait for customers to pay them, before they can buy more stock.  And businesses which are able to offer their customers credit terms and fund that time delay, may find that those customers choose to trade with them more.

A very small business may be able to fund their stock and asset purchases using their cash plus the owners’ personal credit card facilities, but as the business grows, more forms of finance are available to provide a stronger base for future growth.

Why would I need to measure working capital?

Having access to a strong source of working capital will provide business owners with comfort as it can be called upon to cover one-off unexpected costs and can also help businesses to smooth out seasonal trends in income and costs.

Management teams need to know what working capital resources are available to the business when they are creating a business plan and considering the likely success of different growth strategies.

How does working capital affect cashflow?

Cash is part of the working capital calculation.  If other forms of working capital are not available, money is drawn from the bank account and the amount of cashflow reduces

Ways to improve working capital

check company credit

Ensuring strong credit control and debt recovery systems, so that customers pay quickly, bringing those trading profits back into the business as cash

payment terms

Managing payments to suppliers carefully, staying within agreed terms but not paying outstanding balances more quickly than is necessary. This decision should be balanced against the availability of any trade discounts.

manage monthly payments

Cost management with all overheads and supplier terms, negotiating the best prices perhaps by using tendering to encourage competitive bidding

good business credit score

Maintain a strong credit score by having timely and complete management information so that any borrowing rates from lenders are as low as possible

How can external finance help working capital?

Using the tips above, a business can maximise its access to resources from sources of internal working capital.  However, sometimes this won’t be sufficient for the company’s needs.  

If more finance is required, external facilities can be used to bring extra cashflow to the business and this may be in the form of a loan or revolving credit.

What types of working capital facilities are there?

Working capital facilities can either be for a fixed amount (such as a loan), or vary across the month (such as an overdraft).  

If they are fixed they are usually secured on assets in the business and sometimes from the directors’ personal assets too.  

Revolving facilities are always secured on particular assets to which they are attached.

Click on the links for more information about each type of facility.

  1. Term loans are for a fixed amount over a set period of months - eg a £50,000 advance for 36 months.  The interest rate may be fixed or variable and linked to the Bank of England base rate. 
  2. Business overdraft or line of credit is where a maximum amount is agreed by a lender and the business can spend up to that.  The balance should therefore revolve across the month going up or down, but not exceeding the maximum.
  3. Invoice financing or factoring is linked to a percentage of trade debtors or accounts receivable.  It can be for the whole sales ledger, or just for individual customers. It allows a business to drawdown a percentage of the debt before the customer has paid them.
  4. Trade credit can be for stock purchases or to finance overseas purchases. 
  5. Revenue financing or merchant cash advance is used by businesses who have a card terminal and take payments from customers, eg retailers or restaurants or online/ ecommerce traders.  It works well when the business is seasonal as the repayments are based on a percentage of turnover, not a set amount each month. 
  6. Asset finance or property finance is like a term loan, but secured on a particular asset (such as a finance lease) or property (such as a mortgage).

Frequently asked questions about working capital

This type of financing can be used for a variety of purposes (marketing, hiring new employees, expanding your office space, etc.). It can also cover unexpected losses that have reduced or depleted your cash reserves. If you're looking for quick, short-term financing, a working capital loan is a great choice to consider.


No collateral required. If your business has a good credit history, you can qualify for an unsecured loan that won’t require you to use your business, inventory, or anything else to secure the loan.

Shorter term financing. Working capital loans are designed to infuse money into your business on a short-term basis, which means you won’t have to plan for years of monthly payments.

Get fast cash. A working capital loan is a great way to quickly get money without the hassle of a traditional bank loan. Receive cash almost immediately, usually within a few days of your application being accepted.


Many loans will require some type of collateral for the lender. The guarantee may be something like a building, inventory or even your home. The amount of collateral needed varies since lenders will look at information such as your credit rating and your repayment history to determine your creditworthiness. If you qualify for an unsecured working capital loan, you may be offered a higher interest rate, which typically starts from 6% depending on your creditworthiness, since these loans are more risky for lenders. Finally, working capital loans are meant to be short-term solutions, so this type of loans isn't a good fit if longer repayment terms are required.