Working Capital Finance: The Different Types Available to UK Businesses

Written by James Dutton

What is working capital finance?

Running a business day to day comes with a constant cycle of money moving in and out: wages, stock, rent, supplier payments, often before customer income has caught up. Working capital finance is the umbrella term for the various funding types built to smooth that out, giving a business breathing room when necessary. Rather than one single product, it spans several distinct types of finance, each suited to slightly different circumstances.

Why does working capital matter to a growing business?

Beyond covering routine costs, working capital finance is also commonly used to act on opportunities that wouldn't otherwise be affordable in the short term, taking on a larger order, hiring ahead of demand, or stepping into a new market. Because the right product depends so much on a business's specific position, it's worth understanding the range of options before settling on one.

The main types of working capital finance

Business loans: A lump sum provided upfront and repaid over an agreed term. Secured versions are backed by a specific business asset, while unsecured business loans rely instead on the strength of the business itself, generally alongside a personal guarantee.

Revolving credit facilities: Rather than a one-off sum, a revolving credit facility allows funds to be drawn, repaid, and drawn again up to an agreed limit, with interest only charged on what's actually in use. This tends to suit businesses that expect to need flexible access to funding more than once.

Invoice finance: Funding released against unpaid customer invoices, allowing a business to access a portion of what it's owed without waiting for the full payment term to elapse. This generally comes in two forms: factoring, where the lender takes on collection of the invoice, and discounting, where the business retains that responsibility itself.

Asset finance: Funding secured against existing business assets, such as equipment, machinery or property, which can free up cash while placing comparatively few restrictions on how it's used.

How to choose between working capital options

With several routes available, a few questions tend to narrow things down quickly:

• Does the business have assets available to secure lending against, or is an unsecured route more realistic?
• Is the funding need a one-off requirement, or something likely to recur?
• How quickly does funding need to be in place?
• Is the shortfall tied to specific invoices or orders, or is it more general?

It's also worth noting that many of these options aren't mutually exclusive. A business might combine a business loan with an invoice finance facility to unlock cash tied up in unpaid work, for example.

Why speak to a broker about working capital finance?

With so many products available, criteria, pricing and appetite varying widely between lenders, meaning working out the best combination for a specific business can take time to research independently. A broker with access to a wide lender panel can help match a business to the right mix of working capital solutions, rather than the business needing to explore each option on its own.

MAF Finance Group can compare offerings from a wide range of banks and alternative funders to help structure working capital finance around your circumstances.

To learn more or get a quote, fill out the form below. If you'd like to speak to someone directly, call us on 0115 858 1010 and a member of our team will be happy to help.