Working Capital Loans in the UK: What They Are and How to Get One

Working Capital Loans in the UK: What They Are and How to Get One

Working capital is the money a business needs to keep operating day to day. When outgoings outpace incoming cash, even temporarily, a working capital loan can bridge the gap. This guide covers what these products are, how they work, what they cost, and how to work out whether one is right for your business.

What Is a Working Capital Loan?

A working capital loan provides short-to-medium-term funding to cover operating costs rather than long-term capital investment. Common uses include covering wages during a slow month, buying stock ahead of a busy period, covering the gap between delivering work and receiving payment, or managing a seasonal dip.

It is worth saying that needing working capital finance is normal. The vast majority of businesses use it at some point, and a significant proportion run ongoing facilities that they draw on regularly. There is no stigma in it. The more important question is whether it makes sense for your specific situation: is this a one-off tool to cover an immediate gap, or are you looking at a structural facility to manage the fact that your customers take 60 days to pay? The answer shapes which product is right.

Types of Working Capital Finance

There are several products that fall under the working capital umbrella. The right one depends on how your business operates and what the underlying problem actually is.

Unsecured term loans. A fixed sum borrowed for a fixed term with fixed monthly repayments. Worth noting that term loans are technically not working capital products, though many businesses use them for that purpose. Because repayments are spread over a longer period, the monthly amount can be more manageable than a shorter-term facility. They tend to be more accessible to established businesses with solid financials than to newer or smaller ones.

Revolving credit facilities. A flexible facility that lets you draw down and repay funds as needed, up to an agreed limit. You only pay interest on what you use. There are very few genuinely revolving credit facilities available in the UK market. Be cautious of lenders positioning a review-to-top-up product as revolving. With a true revolving facility, you can draw and repay freely within your limit without needing to reapply. With a top-up product, the lender reviews your position and decides whether to advance more. These are meaningfully different.

Revenue-based finance. Repayments are taken as a percentage of daily or monthly revenue rather than a fixed amount, which means they flex with income. This suits businesses with variable turnover. Before signing, check whether there are any minimum repayment amounts regardless of revenue, and whether there is a sunset provision that requires the loan to be repaid within a certain timeframe even if the percentage has not cleared it.

Invoice finance. If late-paying customers are the source of the cash flow gap, invoice finance advances a percentage of the value of unpaid invoices, typically 70 to 90 per cent, and releases the balance when payment clears. The security is the invoice itself rather than business assets, which makes it accessible to businesses that would not qualify for other products.

Merchant cash advance. For businesses that take card payments, a lender advances a lump sum and recoups it via a share of daily card takings. Repayments automatically slow when trade is quieter. A flexible option, though typically one of the more expensive.

How Much Can You Borrow?

Working capital loan amounts vary significantly depending on the lender, the product, and your business profile. Most lenders base the available amount on a multiple of your monthly revenue, typically somewhere between one and three times. Affordability is the primary constraint.

Amounts can range from a few thousand pounds to several hundred thousand. Larger amounts generally require stronger financials, longer trading history, and sometimes security. Terms for most working capital products fall between 3 and 24 months. Shorter terms mean higher monthly payments but lower total interest. Longer terms reduce monthly payments but increase the total amount repaid.

What Do Lenders Look For?

For most working capital products, the key criteria are consistent with business lending more broadly:

• Trading history: most lenders want at least 12 months, some are more flexible
• Revenue: typically a minimum of £5,000 to £10,000 per month depending on the lender
• Cash flow: consistent bank statements that demonstrate the business can service repayments
• Credit profile: both business and director personal credit are usually reviewed
• Existing debt: other commitments affect affordability and how much a lender will offer

For revenue-based products and invoice finance, the criteria differ. These products are more closely tied to the business's revenue or receivables, so they may be accessible to businesses that would not qualify for a standard term loan.

What Does It Cost?

Working capital finance costs vary widely across products and lenders. Rates depend on the risk profile of your business, the product type, the loan term, and whether the facility is secured.

Unsecured term loans from mainstream lenders might carry rates from around 10 to 15 per cent APR for lower-risk businesses. For higher-risk profiles or shorter-term products, rates are significantly higher. Revenue-based finance and merchant cash advances are typically quoted as factor rates or fixed fees, with a range of 1.1 to 1.7 being common. That means you repay between 10 and 70 per cent more than you borrow, depending on the lender and your risk profile.

Comparing products purely on headline rate is a mistake. You need to consider the whole package: the repayment structure, the funding amount, the term length, any fees, and how the product actually fits the way your business operates. A more expensive but flexible facility can be a better outcome than a cheaper product with rigid terms that does not match your cash flow cycle. Convert everything to total cost of borrowing before making a final comparison.

How to Apply

Most lenders will ask for three to six months of bank statements, recent accounts, and basic business information. Some can make a decision within 24 to 48 hours with minimal documentation.

Before applying, check your eligibility using a soft search. This lets you see which lenders are likely to consider your business without leaving a mark on your credit file. Review your own credit files in advance so you know what lenders will see.

If you are unsure which product type suits your situation, speak to your accountant. They will have a sense of your numbers and may be able to point you toward the most appropriate route. AI tools can also help you think through the options if you want to get a clearer picture before speaking to anyone.

Check your eligibility with Floka in a few minutes. No credit check, no obligation, and no impact on your credit file.