What is a Working Capital
(aka the business loan)?
You may be, right now, thinking about a business loan; and if you are, there are a lot of things you need to bear in mind. With a plethora of loans on the market and numerous products designed for speed, length, growth, or small businesses, it’s hard to know where to begin. There are also many lenders on the market — like a mortgage you can get a business loan from high-street banks, challenger banks, online lenders, and small local specialists.
With so many products and providers, eligibility criteria, rates, and overall costs can vary significantly. Let’s have a gander at what’s around and give you the 411.
What working capital is available?
Working capital business loans are a large and vast category and are comprised of lots of products including:
- Secured loans
- Unsecured loans
- Revolving credit facilities
- Business cash advances
And within these categories, you’ll find sub-catefories to serve specific needs such as;
Not to be confused with some form of “payday loan”, in some instances products are designed for speed, so you get the money as fast as possible. At Finance for Entrepreneurs, we have lenders in place that can organise funding within 2 hours.
But, wow fast a loan is massively dependant on how prepared you are. Many if not all lenders require documents such as detailed full filed accounts and in some cases forecasts, and your ability to organise these documents can make the difference between a couple of days or a couple of weeks
Some business loans are provided for the short-term, with agreements between 3 months and up to 2 years. Loans of more than 2 years would be considered medium to long-term.
There are funders available that cater for small businesses specifically. Small business loans have habitually been difficult to get from banks, but with the range of alternative finance available in this current climate, there are more and more solutions around.
I have bad credit, I suppose you can’t help me?
It is more difficult and in most cases costly but it is often possible to get a business loan if you have a poor credit rating. It is still very much worth exploring and you may be surprised at the choices still available if you’re willing to offer security or a personal guarantee or in some cases a third-party guarantor.
Things to bear in mind
With the market saturated with lenders and products, the eligibility criteria for business loans varies. In our first conversation it is likely you will be asked about:
- Turnover and profit
- Bank statements
- Filed accounts
- Loan amount vs. turnover
- Trading history
- Payment history (e.g. CCJs, late payments)
There are no set ‘standard’ criteria for business loans, but there are a few basic points that most lenders look at when assessing your business. Here are a few things to think about before applying:
- The loan amount is less than 25% of your annual turnover
- Your business is profitable
- More than 24 months trading history (for most products)
- No outstanding CCJs or late payments
- Your business is based in the UK
These help lenders gather a picture of your business. In most cases, lenders are unwilling to lend more than 10-20% of your annual turnover and want to see plenty of revenue to demonstrate affordability. If you’re not making much profit or making a loss, it’ll be difficult, and a short trading history (typically less than 2 years) can make things more difficult too.
With all that in mind, you may still be surprised by what’s available to your business. If you need any help regarding business plans or cash flow forecasts you can download them here; Cash flow forecast – Business Plan