HomeKnowledge centre

Working capital finance

Working capital finance includes a wide variety of funding options, all aimed at freeing cash for the everyday operations of your business. But what types are there and how do they work?

What is working capital?

It’s very simply the amount of cash a business can quickly and safely spend without jeopardising long-term commitments. You might also hear it described as liquidity. A business’s working capital can be based on cash on-hand, assets (particularly assets which can be quickly transferred into cash) or expenses due within a year.

You can work out how much working capital your business has by taking your current liabilities away from your business’s current assets.

As an example, let’s assume your business has £8,000 in the bank, a client who owes you £2,000, an invoice for £2,500 that you need to pay, and a tax bill of £2,000. Your working capital would work out as being £5,500 (which is £8,000 + £2,000 – £2,500 – £2,000).

What types of working capital finance are available?

When it comes to financing for working capital, there are a number of different options.

Short-term business loans

A short-term business loan is the simplest form of working capital finance. You borrow a lump sum – either secured or unsecured – and pay the full amount back in instalments plus an agree interest rate.

The amount you can borrow and the interest you pay is based on the performance of your business, your credit rating, what assets you can put forward as collateral (if it’s a secured loan) and the term length.

Merchant cash advance

A merchant cash advance is ideal for businesses who take card payments. With an MCA, the lender basically advances you a lump sum of cash which you then pay back plus interest as a percentage of your card sales. Because the repayments are a percentage of your card takings, they protect you if your business is seasonal – the repayments change with your earnings. Essentially, you only pay when you earn.


Overdrafts for businesses work in more or less the same way as personal overdrafts but they’re hard to come by for business bank accounts. There are lots of different options in the alternative finance market, however. One main disadvantage of an overdraft is that the credit limit is usually quite small.

Revolving credit facility

A revolving credit facility is similar to an overdraft in that it gives you access to pre-approved funding, but it differs because you can get the money wherever you need it. You don’t need to have a bank account with the provider, so you can just use your normal business bank account instead.

Invoice finance

Invoice finance lets you unlock the money you’re owed by your customers who haven’t paid you yet. We wrote about it in more detail here.

What types of working capital finance do you offer?

If you’re looking for an unsecured business loan or merchant cash advance, we can help providing you’ve been trading for more than nine months and that your monthly turnover is at least £6,000.