Every business needs healthy Working Capital, not only for covering its everyday running expenses but also for helping it grow through investment—whether that’s opening up new premises, repairing or updating equipment, or hiring talented new staff members so that it can take on an exciting new project.
Sometimes managing Working Capital can be challenging for SMEs, especially during difficult economic times or when they’re in the early stages of their growth. In fact, economists have warned that 30,000 businesses could fail in 2024, with smaller businesses being the most likely to go bust.
However, there are finance and loan options available that can ease financial pressures. In this article, we explain the benefits of Working Capital finance as well as highlight the options available to support your business.
What is Working Capital?
Working Capital refers to the operating liquidity that’s available for your business. To explain it simply, your Working Capital is made up of your assets minus your liabilities.
Your assets will be made up of several things, including stock of any goods that you might sell, cash, current accounts receivable (i.e., money owed to your business), and also any plant and machinery such as computers, vehicles, factory equipment, etc.
Your liabilities will be anything that your business owes, such as wages, rent, taxes, expenses, unsettled goods and supplier payments, etc.
What is the difference between Working Capital and cash flow?
Cash flow is how much money your business makes versus how much it spends within a given period of time. Working Capital is the difference between your company’s current assets (including cash and other assets) and your liabilities.A company would use its Working Capital as a measure of whether or not it can pay its short-term debts, and cashflow as a measure of its income.
Why do SMEs need Working Capital?
SMEs struggle to invest without sufficient Working Capital, making growth very difficult. A business without enough working capital wouldn’t be able to cover its running costs and could come into particular difficulty if it faced any unexpected expenses.
What is Working Capital finance?
Working Capital finance can bring cash back into your business to help you manage your day-to-day operations. It can also act as a safety net, protecting against any surprise costs.Below, we highlight some of the finance and loan packages available that can support your available Working Capital.
Invoice Finance
Invoice Finance lets you unlock cash that’s otherwise tied up in unpaid invoices.
Lenders typically allow you to borrow around 85% of the value of any unpaid invoices, which means you’ll quickly receive a payment that can be used to boost your cash flow. This can be a great help for businesses, giving them breathing space for running their day-to-day operations as well as allowing them to take on more projects or make investments without having to wait for any customers who are dragging their heels with payments.
Businesses can use Invoice Finance to protect their Working Capital over the duration of a contract. Through Invoice Factoring (a type of Invoice Finance), you can even sell your outstanding invoices to a third-party lender at a discount, who will then be responsible for collecting any outstanding payments.
Equipment Refinance
Equipment Refinance makes it possible for businesses to use their existing assets to access their Working Capital.
When you refinance, you secure the finance against the current value of owned (or even partly-owned) vehicles, equipment and machinery. Generally, you can secure around 80% of the asset’s value.
If the asset is already on finance, refinancing can be a way of securing more favourable terms, such as a lower interest rate or a change in the time that you need to pay back the lender.
You can keep the machinery and continue to use it, which makes it useful for businesses with a lot of Working Capital tied up in their assets.
Business Loan
Business Loans allow you to borrow money to help fund your essential activities. The loans are then paid back monthly with fixed interest payments.
It’s a fairly flexible loan, so you can use it as you see fit. It allows you to purchase new assets, hire new staff, or even simply for boosting your Working Capital so that you have more space to operate without any financial pressures.
New Start Finance
New Start Finance is specifically tailored for helping SMEs secure the funding they need to get up and running. With New Start finance, you can secure funding for equipment and fit-out works (paying for building materials and construction and installation costs. You can also use New Start Finance to raise Working Capital to cover your initial running expenses.
How Origin Finance can help
At Origin Finance, your success is our priority. We’ll take the time to learn about your business so that we can fully understand your Working Capital needs.
Our experts will find the most competitive lender for your requirements and circumstances and prepare all the paperwork on your behalf. We don’t charge a fee, as we are directly renumerated by the Lender.
Get in touch for a free, no-obligation quote.
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Are you thinking of taking the leap and buying a business?
Buying an established business can be an attractive option for many, as you’ll be purchasing a known quantity with historical records of profitability to help with forecasting and putting a business plan together. What’s more, you’ll start with an existing customer base as well as having assets and staffing already in place.
You’ll also likely see cash flow from day one and save on many of the outlays from starting a new business from scratch. You may even already have an in-depth knowledge of the day-to-day running of the company if you are part of the existing management team (and are considering a buyout). It can also be easier to get finance for buying an existing business, as you’ll be able to show financial records that attest to the viability of your venture.
For those who have decided to buy, we answer some commonly asked questions about the finance options available for acquiring a new business as well as for management buyouts.
What’s the difference between an acquisition and a management buyout?
An acquisition is when you buy a business by purchasing most, or all, of its shares to gain a controlling interest. A management buyout (MBO) is also a form of acquisition, except that it’s when the business is bought by the company’s existing management team.
A management buyout can be an attractive option for several reasons. Not only does it save going to market and disclosing potentially sensitive information, but the managers will intimately understand the company’s workings. This means that the seller can leave with the comfort of knowing that things will be left in good hands for the future, resulting in a smooth transition that’s beneficial for all involved.
The main obstacle for management buyouts is that the managers may not necessarily have the resources or funding to buy the business. This can also be an issue for business acquisitions. But there are tried and tested options available.
How do you get an acquisition or management buyout loan?
There are several routes available if you’re looking to buy a business, and these are available even if you’re not an experienced business owner. Options include:
Business loans
One of the most common ways to finance an acquisition or buyout is through a business loans, which allows you to borrow up to £2M for buying a business.
Equipment refinance
Another option for asset-rich businesses is using equipment refinance to leverage their existing assets for a management buyout, which will allow you to release roughly 80% of the business’s current equipment value as working capital (you can carry on using the equipment while it’s on refinance).
Franchise finance
If you’re looking to take on an existing franchise such as a coffee shop or fast food restaurant, then there’s always the option of franchise finance, which can fund the entire franchise cost.
What other loans are available to help for buying an existing business?
Sometimes it’s not about raising the capital for initially buying a business, it’s about bringing something new to the table through modernisation or simply just giving things a refresh.
There are options available if you’re looking to fund new equipment, or even if you want to finance a refit of the existing premises (including building works and decoration so you can really make the business feel like your own). Wherever you need funding, there’s likely to be options available to help.
Can you get an unsecured business acquisition loan?
Where possible we try to provide unsecured loans for management buyout or acquisition loans. We do also have access to lenders who are able to provide secured business loans.
Examples of business acquisition loans
You can get financing for buying virtually any type of business you can think of. From dental practices and accountants to florists and hotels. Whatever you’re thinking of buying, we’d love to help.
How Origin Finance can help
As a specialist broker in acquisition finance, we have access not only to high street banks but also to niche and private lenders. This means that we can find financial support for virtually all of your requirements.
We’ll help you prepare the paperwork, ensuring that your application is as strong as possible.
Reach out for a free, no-obligation quote to find out how we can help secure funding for your acquisition.
There’s never been a better time to start a new business. Last year we saw 774,420 new companies launch right here in the UK. That’s up 3.5% from 2021 and is 19% higher than just five years ago.
Starting your own business is a very large (but very rewarding) challenge that’s well worth undertaking. It’s also well worth starting to think about all of the financial options available to you, so that you don’t exhaust your cash flow too early, and to make sure that you’re well prepared for any bumps that you might face down the road.
One of the main hurdles entrepreneurs face is getting enough cash together to pay for the initial costs. Less than half of UK startups survive beyond their first five years, with the records showing that insufficient financing is the main reason for business failure among startups in 2022.
Virtually every business needs some level of finance to get going. Whether it’s for buying equipment, office space, or marketing, the costs for starting up a great business can really add up. And that can even be before your business has gotten off the ground.
Once you get going, you’ll also have to think about your ongoing cashflow to make sure that you’re agile enough to overcome any obstacles that crop up while you’re growing and building your financial stability.
Fortunately, there are several funding options out there to help you get your business up and running to the best possible start.
What are common options for financing new businesses or startups?
Some of the most common sources for financing new businesses or startups include:
- Equipment finance
- Fit out finance
- Business loans
- Invoice financing
- Vehicle finance
Each of these financing solutions caters to different needs and aspects of a new business, from purchasing the necessary equipment to setting up a physical location, managing cash flow, and acquiring vehicles for operations. Below, we explain each of these financing options.
Equipment finance
All tech firms need computers, as restaurants need ovens and manufacturers need machinery. As such, equipment finance is an obvious choice for starter businesses that need to buy equipment that’s essential to their operation to get going (without having to fork out on an initial heft investment).
And it’s not just for “tangible” assets like computers and desks, or tables and chairs – it also cover “intangible” assets like software, signage or even AstroTurf so don’t be afraid to enquire about equipment financing even if your business has some unique needs.
Fit out finance
When setting up a new physical location, fit-outs can be a big expense (even fit outs for small units can be pricey). Fit out finance helps new businesses by funding construction and renovation through monthly repayments as opposed to one big upfront payment – making things a bit more manageable. Like equipment finance, it covers both tangible and intangible items, making it a great option for a variety of business types, like shops, gyms and offices.
Business loans
Business loans are a go-to option for emerging businesses who are looking for a bit of flexibility with their funding. The money can be used for various things, from covering working capital and deposits to funding management buy-outs and acquisitions.
Invoice financing
Invoice financing essentially turns outstanding invoices into immediate capital.
Instead of waiting for clients to pay their invoices— which can take weeks or even months— a business can access a significant percentage of the money that’s owed.
Sometimes this can provide a new business with a lifeline, but it also gives a bit of financial stability generally and is therefore an option for helping to navigate the unpredictable early stages of entrepreneurship.
Vehicle finance
Vehicle finance, or commercial vehicle finance, allows businesses to purchase cars, buses, taxis, vans, etc – all of which generally have a large initial upfront payment.
Whether it’s for delivery services, employee transportation, or simply a company car, vehicle finance lets businesses acquire the vehicles needed for running their operations.
How Origin Finance can help
Starting a finance business can seem daunting, but it’s entirely achievable with the right financing options and support.
Here at Origin Finance, we’d love to support your new business venture. If you let us know what you’re looking to finance, we can help you to find the most suitable funding solution. As we work with over 120 lenders, each specialising in different industries, we’re able to find the most competitive finance products for your new business.
And our team won’t just look at your numbers; we want to understand the people and the ideas behind your business to learn more about what you do and why you do it. We have proven that a compelling business story will significantly increase your chances of securing business finance.
We also offer flexible payment terms, including seasonal payments for seasonal businesses, and the ability to spread VAT throughout the finance period. In addition, our partnerships allow us to provide finance for new, used, or refurbished equipment, with no deposit required in many cases.
Find out about our turn-key new start finance solution, or get in touch for a free no-obligation quote without affecting your credit score.
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