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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