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You will need working capital if you want to fund business growth, pay operational costs, or expand to new premises.
In many cases, a business won't have sufficient working capital without some form of financial assistance. Insufficient levels of working capital can put a business under pressure on a day-to-day basis.
Working capital can be defined as the cash available for business activity that isn't tied up in longer-term commitments. It is essential for keeping up with payments and making sure your business is not restricted when it comes to growth opportunities.
On a balance sheet, working capital can be calculated as your business's current assets minus your current liabilities.
If you need additional funding to bolster your cash flow, you may want to use business finance.
We can help you access the funding you need as quickly as possible. Our service provides cash advances and short-term and long-term finance solutions for small and medium-sized businesses that are registered in England, Wales or Scotland.
Flexibility - provides flexibility on how you plan for the future
Business Growth - provides options and potential for acting on opportunities as they arise
Cushion - a financial buffer when unexpected costs arise
Some examples of different types of working capital loans are:
Working capital loans can provide essential funding to support daily operations, compensate employees, and address unexpected expenses. This additional financial flexibility can help businesses seize growth opportunities.
Working capital loans have many advantages:
They can provide financial assistance during lean periods, which can help you keep up with business expenses.
Repayment schedules can be flexible, so you can choose your loan terms based on your needs.
Working capital loans can be used for different purposes, such as purchasing inventory, upgrading equipment, or funding marketing campaigns.
Working capital loans are designed for speed, providing businesses with much-needed cash within a short timeframe.
By addressing cash flow gaps, working capital loans help you manage day-to-day operations more effectively, ensuring smooth business continuity.
There are a number of key things lenders consider when applying for a working capital loan. Knowing them before you apply could increase your chances of getting approved.
Firstly, lenders will want to know your business’s financial health and cash flow stability.
In order to assess these factors, lenders will want to get an idea of your:
Business history and revenue - Lenders often prefer businesses with a proven track record of at least six months to a year. They will assess your turnover to determine your ability to repay the loan.
Credit score - Lenders assess your personal and business credit scores to evaluate your repayment history and creditworthiness. Maintaining a good credit record can significantly improve your chances of loan approval.
Financial documentation - Be prepared to provide financial statements, tax returns, bank statements, and other relevant documents to verify your business's financial health. Lenders will want to see your business's profit and loss statements, balance sheets, and cash flow statements will be reviewed by lenders. They use these to assess your ability to generate revenue and manage expenses effectively.
Business plan - Some business lenders may require a detailed business plan that outlines your objectives, strategies, and financial projections.
Collateral (for secured loans) - If you're applying for a secured working capital loan, you may also need to provide collateral.
It's important to be aware that entering any loan is a financial commitment. If you are already experiencing financial issues, a working capital loan could be an additional financial burden.
It's important to plan your cash flow and evaluate the best funding option for your specific needs. And if you're unsure, it's beneficial to consult a professional to get tailored financial advice.
What to be aware of:
Unsecured working capital loans typically have higher interest rates than secured working capital loans
Taking on additional debt means you'll have to make regular loan repayments, impacting your cash flow in the long term.
Meeting the requirements for a working capital loan can be challenging for businesses with poor credit or limited operational history.
It can be helpful to know what funds you'll need and how they can be used before you apply for a working capital loan.
Keeping your net profits in mind when making these decisions can ensure that you don’t overreach your borrowing amount and can allow you to maintain a manageable budget.
It's also important to know that lenders may all have different interest rates, repayment terms, and opportunities for flexibility.
Case study: Our case study below details how we raised £300K working capital for the expansion of a pharmaceuticals company
It can be important not to apply for a larger loan than you need for your business. The sweet spot is just enough funding to offer the financial freedom you need for your business without any unnecessary financial strain.
But how can you know exactly how much working capital funding you need?
Here’s how you can calculate what size working capital loan you need:
Calculate current assets - Add up the value of your business's cash, accounts receivables, inventory, and any other short-term assets that can be converted into cash within one year.
Calculate current liabilities (debt & expenses) - Add up accounts payable, outstanding bills, and other short-term liabilities due within a year.
Assess additional funding requirements - Consider any upcoming expenses or investments your business needs to make. Consider these to anticipate any further working capital you may need.
Once you have a good idea of the amount of working capital you'll need, you can approach lenders with a clear insight into how much funding your business requires.
Working capital loans can be secured or unsecured. A secured loan requires collateral, such as property, and usually offers lower interest rates and higher borrowing limits.
Unsecured loans don't require collateral, but their interest rates can be higher. Some examples of unsecured working capital loans include lines of credit and invoice financing.
Small businesses can face unique financial challenges, so the quick and flexible nature of working capital loans can benefit these business structures.
Working Capital Loans can:
Bridge cash flow gaps during slow seasons or when waiting for client payments.
Fund necessary inventory purchases, enabling businesses to meet customer demand and maintain a competitive edge.
Support marketing and advertising initiatives, helping small businesses expand their reach and generate more revenue.
Provide capital for equipment upgrades or technology investments, enhancing operational efficiency and productivity.
By addressing these specific needs, working capital loans can help small businesses to grow and thrive
Different industries and business structures each present their unique obstacles. Your business's industry and profits will play a role in your loan application. Lenders pay attention to your business's performance trends to assess the risk associated with the loan.
They may look at factors such as market demand, competition, and your business's track record within the industry.
The loan amount and repayment terms - The loan amount you request and the proposed repayment terms play a role in the approval decision. Lenders want to ensure that the loan amount aligns with your business's needs and that the repayment terms are feasible based on your cash flow.
Business plan and purpose of the loan - A well-structured and clear business plan that explains the purpose of the loan and how it will benefit the business can positively influence its approval. It demonstrates your preparedness and strategic thinking.
Managing your loan repayments efficiently is essential to make sure your business is operating smoothly.
Consider the following best practices when repaying working capital loans:
Create a repayment plan - Develop a clear repayment plan that aligns with your business's cash flow. Ensure that the repayment amounts are manageable and fit within your budget.
Prioritise loan payments - Make loan repayments a priority to avoid late fees or penalties. Allocate funds specifically for loan repayments and set up automatic payments if possible.
Monitor your cash flow - Continuously monitor your cash flow to ensure that you have sufficient funds to cover loan repayments. Adjust your repayment plan if necessary to accommodate any changes in your cash flow patterns.
Communicate with your lender - Contact your lender as soon as possible if you are having difficulty repaying your loan. They can offer flexible options or work out a solution to help you navigate any temporary setbacks.
Avoid unnecessary debt - While it may be tempting to take on additional loans, carefully evaluate the impact on your overall financial health. Taking on excessive debt can strain your cash flow and hinder business growth.
Case study: Read our case study below to find out how we secured a £150k business loan for an expanding gym
Assess your borrowing needs
Before applying for a working capital loan, it can help to analyse your business's financial situation thoroughly. By doing this, you can identify your specific funding needs and determine the exact amount required. This could help you avoid borrowing more than necessary and can minimise interest costs.
Understand the terms and conditions
Any financial product will have its benefits and clauses to be aware of. It can be helpful to read the loan terms thoroughly and ensure you're aware of any fine print.
If you’re unsure what direction to take, it is always beneficial to get help from a financial professional who can advise on the best course of action for your business and help you understand the terms of your commitment.
Pay attention to interest rates, repayment schedules, associated fees, and potential penalties. Make sure you are comfortable with the terms before signing the contract.
Monitor cash flow and adjust repayment plan if needed
It can be advisable to keep track of your cash flow and ensure you can meet your loan repayments comfortably. If your circumstances change and you anticipate difficulties in repayment, discuss potential adjustments with your lender.
Renegotiating repayment terms can help you avoid default and maintain a positive relationship with your lender.
Maintain open communication with your lender
It's important to maintain a good working relationship with your lender. It can be helpful to communicate any significant changes or challenges your business may face promptly. Building trust and transparency can lead to more favourable terms, potential refinancing options, or access to additional funding in the future.
Evaluate the impact on your business
Continuously assess the effect of the working capital loan on your business's financial health. Monitoring key performance indicators such as cash flow, revenue growth, and profitability can help you decide how to approach future funding options.
Has the loan delivered the expected benefits? Depending on the answer, adjusting your strategies accordingly can benefit your business in the long term. Remember to assess your funding needs, compare loan options, use the funds strategically, and maintain open communication with your lender.
With careful planning and responsible financial management, a working capital loan can fuel your business's success and propel it towards long-term profitability.
At Clifton Private Finance, our business finance specialists have access to various finance solutions from across the market. We can help you choose the right finance solution for your business requirements.
Our team of advisers will help you to source the most competitive cash flow funding solution.
Our business loan service provides:
As a specialist property finance broker, Clifton Private Finance can provide a clear picture of the options available to you. We will assess your circumstances and arrange a finance solution tailored to your needs.
Our offices are based in Bristol and Cardiff.
We can help you access the funding you need as quickly as possible to avoid creating any financial issues.
I approached Clifton Private Finance to help me get a mortgage as an Expat working in the Far East. I would normally 'cut out the middle man' on something like this and try to get myself a deal directly with the banks, but I am now sold on the broker concept and wouldn't hesitate to use Clifton Private Finance again. There were a number of complicating factors such as being an expat, the stamp duty holiday, the sheer amount I wanted to borrow and the fact I wanted it all wrapped up before the Stamp Duty holiday ended. It is clear to me now that the relationship that brokers have managed to foster with their banks means they can simply pull levers and make stuff happen that us ordinary folk cannot. Put simply, they are worth every penny, will take most of the stress out of the lending process, and seem to have access to deals that you just won't find on the internet. Thank you George and Jan for all your hard work!
James M
Luther was excellent. Very clear in his advice and explanations of products and was able to move things on very quickly when we ran into difficulties with the estate agents. Without a doubt I would recommend Luther to all friends, family and colleagues. Luther was a joy to deal with and took a lot of the stress out of a troublesome transaction, from my end. I would view Luther as real asset to Clifton Private Finance Ltd.
William W
The team at Clifton Private Finance has been outstanding, not only in helping me to obtain a mortgage on a slightly unusual home, but also in continuing to provide support and liaise with the lender and solicitors through to completion. Thank you for making the process of buying my first home much easier.
Chantelle S
Sam O'Neill, and the new lender he identified for me, worked tirelessly together using my time constraints, to make sure my mortgage application was completed on time. They are a brilliant company to work with, fast, efficient, open and transparent from the very beginning, and turned a seemingly impossible situation into a viable one. Sam was brilliant throughout the whole process and I would highly recommend him, and his colleague Helen, to anyone without hesitation, I cannot speak highly enough about them.
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I was incredibly lucky to find Clifton Private Finance after a search on line as their service has been more than exemplary. My point of contact was Sam 0’Neill and he was happy to help at every stage during the application of the bridging loan, making a stressful process much easier to deal with. He was always available by phone or email and gave prompt answers to queries I had as well as always getting back to me when he said he would. That to me is excellent customer service and I cannot thank him personally or the company enough for the support they have given me.
C Jefferey
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You have certainly shown me that you do everything for your clients, including tolerating their excessive emails and questions for updates. I have been kept in the loop, from yourself, about why the delays were occurring (Nationwide, post etc) which I would like to highlight that I really appreciated. I certainly will be able to recommend you to others as and when the need arises.
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I recently contacted Clifton Private Finance after a Google search for bridging finance providers and was immediately struck by their efficiency and support. Forms were emailed over almost immediately and the necessary finance was arranged within a few days. None of the other companies I contacted came close to their professionalism, and the quote that I eventually received was impressive. Thank you Adam, your help has enabled us to reserve the house that we wanted and I certainly recommend you to others.
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Absolutely brilliant. The service was first class, got everything sorted efficiently and were always friendly. Any fees were negligible compared to the service offered. Robert was particularly outstanding.
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My advisor, Robert, was very helpful in finding the mortgage to suit me. He kept me up to date throughout the process and dealt with any issues when they arose.
Rowena C
