Working capital is critical to any business. In the words of the website for small businesses, Informi, working capital is a measure of the overall state of health of any business.
What is working capital?
It is an accounting term, but a term that is probably one of the most easily understood.
The working capital available to any company is found simply by deducting the value of current liabilities from current assets. If there is a positive sum, the company is able to pay its various liabilities as they fall due – and may, therefore, be on the road to success. If there is negative working capital, bills may need to go unpaid, the company is no longer able to trade, and may eventually go bankrupt.
So, working capital may be fundamental – any shortfall needs to be addressed in short order. But how do you get it?
Getting working capital
The initial working capital for your company may have been provided by you personally or by investors. That working capital has been maintained – and hopefully expanded – through the retained profits from your trading activities.
But if there is a shortfall – or the prospect of a shortfall – in your working capital, one of the immediate ways of addressing that critical problem is through borrowing.
When additional working capital is required, you might want to consider the following factors when choosing any business loan:
- it is likely to be needed quickly – and, in a fast-moving business environment, that is likely to mean hours or no longer than a few days, rather than weeks;
- an unsecured loan avoids the inevitable delays in setting up the security needed for a secured loan and puts none of your company assets at risk;
- you need to choose a sufficient sum to borrow – a few thousand pounds might suffice to meet your immediate needs, or you might require as much as £100,000;
- the faster you are able to repay the business loan, the less there will be to pay in interest;
- the repayment schedule is critical since it has a direct impact on your ongoing cashflow management – underlining the fact that successfully managing your cashflow goes hand in hand with maintaining sufficient working capital; and
- should the agreed repayment schedule throw up temporary cashflow problems, so that you are unable to make a payment one month, for example, do you incur further financial penalties for that omission.
Short-term, fixed rate business loans
Specialist providers of short-term, fixed rate business loans – especially those conducting their business online (with telephone support whenever that might be needed) – may be able to provide a more or less immediate decision in principle on your request for funding.
Following consideration of your formal application, and the credit checks required by the Financial Conduct Authority (FCA), the decision is made whether or not to grant your requested loan. If it is approved, with some business loan providers, the funds are likely to be electronically transferred directly to your company bank within about 48 hours.
So that you remain in control of the expense of such borrowing and to facilitate cashflow management throughout the repayment schedule, lenders may advise the precise cost of credit as a single sum from the very start of the loan agreement. If you encounter a temporary problem in meeting an agreed instalment, however, some lenders are sufficiently flexible to allow an extension to the repayment schedule without imposing any financial penalty.