Working Capital Loans: A Lifeline For Small Manufacturers

For many small businesses in the UK, cash flow can be unpredictable. This can be further exacerbated by the rising costs of raw materials, wage fluctuations and unexpected higher operational costs. Throw late invoice payments into the mix and it can sometimes be a perfect storm that leaves businesses without the liquid capital to cover expenses or take advantage of growth opportunities. In the worst-case scenario, it could spell the end of the business.

Fortunately, business working capital loans can provide access to essential short-term funding that can keep businesses going, even when cash flow issues are causing a major headache. Let’s take a closer look at the role business working capital loans can play and why they may be so beneficial to smaller businesses.

The Importance Of Business Working Capital Loans

There are many reasons why cash flow can become a problem. It could be something as simple as seasonal demand or even an unexpected expense caused by an equipment breakdown. But no matter what causes the issue, when a business runs short or out of cash then everyday operations become very difficult and sometimes impossible. And it is much more common than you might think. In 2023, just under half of all UK small businesses reported having cash flow difficulties. All of which points to why having access to flexible, short-term and fast funding options is so crucial.

This kind of funding offers immediate liquidity and allows businesses to maintain operations and invest in growth opportunities. It also allows them to take care of everyday expenses such as payroll, materials and more.

The Different Types Of Working Capital Loans

Manufacturers can choose from a number of different types of working capital loans. These include:

• Bank loans: These standard term loans offered by banks come with fixed repayment terms and interest rates. They are reliable but generally require strong credit histories and collateral. This makes them less accessible for many smaller firms.
• Invoice financing: A popular choice among manufacturers, they allow businesses to borrow against unpaid invoices. According to UK Finance, invoice finance provided over £40 billion in funding to UK businesses in 2022,
• Merchant cash advances (MCA): MCAs provide a lump sum in exchange for a percentage of future sales.
• Business lines of credit: Business lines of credit enable manufacturers to borrow as needed, paying interest only on the amount used. This is a flexible solution that can be used to manage unexpected expenses or temporary cash shortages.
• Government and alternative lenders: The UK government offers various loan schemes, such as the Recovery Loan Scheme (RLS). Additionally, there are now many alternative lenders that provide quick access to funds. These tend to be much faster, more flexible and with far fewer restrictions than traditional banks.

Choosing The Right Working Capital Loan

To choose the most suitable working capital loan businesses need to consider factors such as interest rates, repayment flexibility and funding speed. These will all depend on their individual circumstances. In addition, it is also vital to understand credit requirements which will not only improve approval chances but also prevent time wasted on unsuitable applications.

Discover more about business loans for working capital​ and the benefits of alternative finance by getting in touch with our team here at Century Business Finance today!

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