Best Loans for Working Capital

Have you ever checked your business’s working capital and thought that it could stand to be improved?

It is not easy to maintain the financial health of your business, and your working capital can suffer in some circumstances. In this situation, a loan can help to keep your business afloat.

Loans for working capital are one answer if your business is swimming against the tide of debt, insufficient liquidity of assets, and many additional costs. If you have looked into working capital loans, you will know that many options are available, but which are the best?

This article explores the six top working capital loans available to fund your UK business.

What Are Loans for Working Capital?

If you need sufficient funds as a company to cover your business needs and frequent operations, you may require working capital financial support or loans. These loans are short-term loans that are funded quickly by lenders. 

Therefore, with this loan type, you can expect shorter-term financial repayment periods than other types of loans. They help your business face short-term financial challenges and are not ideal or suited for long-term investments or for purchasing long-term assets.

A loan for working capital may cover payroll costs or premises rent costs for your business. It is the perfect option if you have periods of inactivity in your business.

For example, suppose your company has a cyclical sales pattern with quieter periods, such as those e-commerce stores experience after making most sales during the holiday season. In these cases, you may use a working capital loan during this period. 

Alternatively, you may have assets that cannot readily be converted into cash. In that case, your business may not achieve full liquidity or have sufficient working capital, and you may require a working capital loan.

If there is a significant difference between a company's current assets and liabilities, and liabilities exceed assets, you may fall into negative working capital. It is important to avoid having negative working capital and track your working capital current assets, which will help you close the gap between owed debts and short-term assets.

When you apply for a working capital loan, it's also important to consider your assets/current liabilities, cash flow, term debt and effective working capital management. These approaches can ensure your finances fall into the positive working capital category and prove to lenders you can continue functioning as a business. A quarter of SMEs use business loans in the UK.

How Do Loans for Working Capital Work?

Like standard loans, working capital loans work when you borrow money from a bank, or perhaps an online lender or credit union for your business.

The provider will offer you a line of credit or a lump sum, which you will have to repay over a short term — typically within 12 months. A few major factors will influence the amount your business can borrow, including a specific analysis of your business finances.

Working capital loans are suitable depending on the net working capital of your business and, sometimes, your creditworthiness. Lenders will evaluate your ability to repay these loans before making you an offer.

What Are the Main Features of Loans for Working Capital?

• Interest rates: With a working capital loan, you can borrow money that you will pay back from a lender to make purchases, but you must repay a portion known as the interest rate. You can check the amount of interest or interest rate you will need to pay by looking at the APR.
• Working capital ratio: This feature refers to a metric lenders may use to determine a company's capability to cover short-term liabilities. The greater your working capital, the more likely you are to be able to meet financial obligations.
• Credit check: The lender your business applies to will review your business credit score to determine whether you are creditworthy and can afford to repay the loan over a short period. Your creditworthiness and loan term will determine how much interest you will have to pay, as shown by the annual percentage rate.
• Loan term: The loan term applies to the duration of the loan and the time it will take for you to repay the funds as a borrower.

Best Loans for Working Capital Pros and Cons

In the sections after this, we will explore the best loans and finance options for working capital.

Here, though, we will take a quick look at the pros and cons of these loans. Consider these advantages and drawbacks before looking at these loans for your business.

Pros

✔️ Fast access to funds — A working capital loan is easy to receive. You typically do not need to provide a reason why you are seeking funding, and a lender will give you instant access to funds to handle your financial obligations if you are eligible.

✔️ Unsecured working capital loans offer advantages — If you apply for an unsecured working capital loan, you will not need to put down any collateral, especially if you have a high credit score that indicates you can make the repayments. This advantage means you will not lose your assets if you cannot repay the loan.

✔️ Short-term loans — You will not need to worry about a long-term loan or making repayments for several years because loans or finance options for working capital are intended as short-term financial aid.

✔️ Unrestricted use of the loan — Although the loan applies specifically to business operations, you can spend a loan for working capital as you see fit within these parameters. There are hardly any restrictions that apply to using your loan; you may use it for payroll, business operations and many other factors related to working capital.

Cons

❌️ High interest rates — With loans for working capital, you can expect high interest rates, particularly if you cannot find or be approved for an unsecured loan. A typical interest rate is 6%, but many loans have high annual percentage rates.

❌️ Collateral — If you can only get approval for secured loans for working capital, you will have to put items or assets forward for collateral, which you will forfeit if you cannot repay the loan.

❌️ Damage to your credit score — If you cannot make a payment or miss a payment, it will be difficult to get approved for another business loan in the future, such as for business credit cards.

❌️ Repayments are non-negotiable — Whether the loan supports your business or makes little difference, repayments are non-negotiable. You must repay the loan regardless of its outcome on your company.

Best Loans for Working Capital — Reviews

To find the best loan options for your business operations, consider the list our experts have created just below.

We have also included the key features of each loan.

1. Funding Circle

The government-owned British bank accredits Funding Circle, which offers many benefits with its working capital loans. It takes only 10 minutes to apply for your loan, and you may receive a decision in just one hour, depending on your business's financial health.

The amount you can borrow from Funding Circle ranges from £10,000 to £500,000. When you are approved for the loan and pay it back, you can settle it early without paying additional fees.

Visit Funding Circle

Applying for a loan through Funding Circle takes just a few steps.

You can first check your eligibility, a quick process that will not affect your credit score. Then, you may proceed with your application, wait for Funding Circle to decide, and provide you with a personalised quote. They will then deposit your funds into your business bank account.

The interest rate, loan term, and amount you want to borrow will affect the cost of the loan. Funding Circle will also charge a completion fee and calculate your interest rate based on your credit score. Their loans are all fixed-rate loans, so borrowing and repayment costs are easier to track and understand.

Key Features:

• Funding Circle provides unsecured loans
• This provider offers short and long-term finance
• Loans of up to £500,000 are available

2. LendingCrowd

LendingCrowd's working capital loans are ideal for short-term financial requirements. It is possible to borrow between £75,000 and £500,000 from this business loan provider, and you will always receive a quick decision on your application. 

The application process takes just 15 minutes, during which you will need to provide bank statements for the previous three months and file account information going back two years, after which LendingCrowd will look at your business plan, assets, liabilities and creditworthiness.

Visit LendingCrowd

They will also review your needs as a borrower and extend an offer only if you can repay them.

Your loan term can range from six months to five years, and it is possible to overpay or repay early. Therefore, if you want to make regular repayments or a one-off overpayment, you can do so without paying any fees.

Key Features:

• Lending Crowd offers loan amounts of between £75,000 and £500,000
• Loan terms last between six months and five years
• No fees apply for overpayment with Lending Crowd

3. Iwoca

More than 90,000 small businesses use Iwoca to finance their companies and gain access to working capital. Your business can receive up to £500,000, which you can use for everyday business expenses.

The application process takes just a few minutes, which will not impact or affect your credit score, and you can repay the loan early without paying any fees. Your loan term with Iwoca will last between one day and 24 months.

Visit Iwoca

To apply for a business loan with Iwoca, you first make an application and include your bank statements and VAT tax documents, after which Iwoca will verify your details and determine your eligibility within 24 hours. You can then receive your funds after you accept the offer.

Iwoca states that the interest rate you can expect ranges from 2% to 6% per month, which will depend on the amount you want to borrow and additional factors.

Key Features:

• You can receive up to £500,000 for your business loan
• You can receive a decision from your lender within 24 hours
• Iwoca’s interest rates range from 2% to 6% per month

4. Fleximize

Fleximize is an award-winning provider of business loans available in the UK. It provides unsecured loans of up to £250,000 and secured loans between £5,000 and £500,000. 

In terms of their financial options, they have flexible conditions. You can repay the loan over three to 48 months or early without any extra costs or fees related to early payment. The interest you repay applies to the remaining amount, not the total loan amount. While interest rates may vary, with Fleximize, you may receive rates as low as 0.9% per month. 

Visit Fleximize

There are a few eligibility criteria to consider if you intend to apply for a business loan with Fleximize.

For example, you must be an LLC or limited company operating in England or Wales (although this provider offers loans of £250,000 loans to companies in Scotland and Northern Ireland). You must also have been trading for at least six months and have a minimum turnover of £5,000 monthly.

Fleximize offers a loan calculator to help you calculate working capital loan costs. Tailored quotes are also available when contacting their customer support team.

Key Features:

• Fleximize provides unsecured loans of up to £250,000
• This provider also offers secured loans of up to £500,000
• Interest rates can be as low as 0.9% each month

5. Capify

Capify offers businesses loans designed to support their working capital. From loans for small businesses to secured business loans, there are several products you can apply for through this loan provider.

You can apply for loans worth between £5,000 and £500,000 with Capify and use the funds for various expenses. To be approved for this loan, you must complete an application and satisfy specific eligibility criteria, although Capify's assessment considers more factors than a traditional bank.

Visit Capify

In other words, they will evaluate more than just your credit profile.

Some eligibility criteria you must meet include earning a turnover of more than £10,000 per month and having a minimum of 12 months trading records. 

It's possible to check your eligibility online without affecting your credit profile. You can complete this process by selecting your business type and providing your financial information. Capify will send you the funds in 24 hours if they approve your suitability for the loan.

Key Features:

• Capify offers loans for small businesses 
• This provider offers loan amounts of up to £500,000
• Loan approval can take just 24 hours

6. SME Loans

SME Loans provide unsecured loans for businesses that support working capital requirements. You will not need any collateral when you select an unsecured loan from SME Loans, meaning your assets will remain safe. Many other features are available with this provider.

For example, you can request tailored repayment plans for your business, and SME Loans will also offer you competitive rates to keep your payments low.

Visit SME Loans

The lenders at SME Loans are Financial Conduct Authority-regulated and are authorised to offer you the loans you require. 

To apply for a business loan for working capital from SME Loans, submit your application online and provide details about your business. If your application is successful, one of SME Loans' brokers will contact you to discuss loan options, conditions and terms.

Whether you need to invest your money, invest in new staff, purchase new equipment or require a financial solution for premises rent, a loan from SME Loans will support your business.

Key Features:

• You can make applications for unsecured business loans from SME Loans
• SME Loans offer tailored repayment plans
• The brokers at SME Loans are FCA-regulated
• A one-month cooling-off period applies to your loan to help you confirm you are happy with the decision

Best Loans for Working Capital: The Verdict

Multiple loan options for working capital are available, so you must consider which options best match your company. This list is an excellent starting point that will point you toward the ideal providers.

Whichever short-term financial support you require, the loans here will keep your business operating and settle any unexpected fees or bills. Compare the loans and providers to choose the best option for your business.

Related Guides:

• Best Business Loan Brokers
• Capify Review — Easy Business Loans
• What Is the Business Bounce Back Loan Scheme?