Working capital finance explained

What working capital finance is

Working capital is the cash your business needs to run day to day — the buffer between what you owe (suppliers, wages, VAT, rent) and what you are owed (customer invoices, stock waiting to sell). When that gap opens up faster than your cash can fill it, working capital finance covers the shortfall.

It is deliberately short term. Unlike a long-term loan used to buy premises or a major asset, working capital finance funds the operating cycle: buy stock or deliver a service, wait to get paid, then repay. Facilities are usually measured in weeks or months rather than years, and are sized to your trading rhythm rather than to a one-off purchase. The goal is to keep the business moving when timing — not profitability — is the problem.

When a business needs it

The clearest signal is a profitable business that still runs short of cash. That sounds contradictory, but it is one of the most common reasons solvent companies fail. Typical triggers include:

• Slow-paying customers — you have delivered, but 30, 60 or 90-day terms tie up the cash.
• A large order you can win only if you can fund the stock or labour up front.
• Seasonal swings where costs land months before revenue does.
• A tax or VAT bill falling due in a thin month.
• Growth — scaling almost always consumes cash before it generates it.

If the underlying business is sound and the issue is purely timing, working capital finance is usually the right tool. If the business is loss-making, borrowing only postpones the problem — that is a restructuring question, covered in our turnaround finance guide.

The main types of facility

"Working capital finance" is an umbrella term. The right structure depends on what is tying up your cash.

Facility	Best for	How repayment works
Short-term loan	A defined, one-off gap	Fixed instalments over a set term
Revolving credit facility	Recurring, unpredictable gaps	Draw, repay and redraw as needed
Invoice finance	Cash locked in unpaid invoices	Released as customers pay
Merchant cash advance	Card-led retail and hospitality	A share of daily card takings

Many companies use more than one. A flexible line such as Credicorp Flex can sit alongside an invoice facility, covering different gaps. Compare the structures in our invoice finance and revolving credit guides.

How much it costs

Cost depends on the facility type, the term, your trading history and the lender's view of risk. As a rough, illustrative guide for short-term unsecured business borrowing in the current UK market, you might see monthly rates in the low single digits, plus a one-off arrangement or origination fee. On a revolving line you typically pay only for what you draw.

Because terms are short, focus on the total cost in pounds rather than an annualised headline rate — a high APR on a facility repaid in eight weeks can still be cheap in absolute terms. Read the offer carefully for arrangement fees, any early-repayment terms and how interest accrues. Our guide to business finance fees breaks down what to look for line by line.

The Credicorp approach

Credicorp Limited is a UK commercial lender providing short-term working capital to limited companies. We lend to the company, not to you personally — there is no personal guarantee, so your home and personal assets are not on the line for the facility. That is a meaningful difference from much of the market, where directors are routinely asked to guarantee company borrowing.

As an exempt business lender, our facilities are built for fast, practical decisions on company affordability rather than the long forms attached to secured lending. If you want to see how a facility would look for your company, you can explore our business loans or register to apply. This guide is educational and not financial advice.