August 20, 2025

Finance

What Is a Working Capital Loan?

Q: What’s the difference between a working capital loan and a term loan?

A working capital loan is short-term and covers operational expenses. A term loan is long-term and usually funds large purchases or expansion.

Q: Is a working capital loan unsecured?

It can be, but lenders may require a personal guarantee or collateral depending on your credit history and business age.

Q: How quickly can I get approved?

Fintech lenders often approve within 24–48 hours, while traditional lenders may take up to two weeks.

Q: What if I miss a repayment?

Late or missed payments can harm your credit and incur fees. It’s best to communicate early with your lender.

Q: Can startups qualify?

Some lenders accept newer businesses, but most prefer at least six months of trading history and strong revenue flow.

Learn how working capital loans support day-to-day business costs, their pros and cons, and how to qualify. Ideal for UK SMEs needing short-term funding.

James Laden

Co-founder and CEO

A working capital loan is a type of short-term business financing. It helps companies pay for daily operating costs like payroll, rent, utilities, and inventory. This loan is not for buying property or long-term assets. It’s about keeping your business running day to day.

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Funding Agent

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When Should You Use a Working Capital Loan?

Working capital loans are flexible. Here are some smart times to use one:

Slow seasons: Bridge cash flow gaps when sales are down.
Project kickoffs: Cover upfront costs before client payment rolls in.
Bulk buying: Take advantage of supplier discounts.
Emergency repairs: Keep operations going without disruption.

These loans give you breathing room when revenue is delayed or expenses spike.

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How Working Capital Loans Work

Most working capital loans come as a lump sum or a revolving credit line. You’ll typically get approved in a few days, especially with fintech lenders. Repayment terms are short—anywhere from a few weeks to 12 months.

You might pay back:

In fixed monthly or weekly instalments
Through flexible drawdowns, similar to a credit card
Using daily sales deductions, common with merchant cash advances

This flexibility makes them ideal for covering ongoing costs without long-term debt.

What Are the Pros and Cons?

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Pros

Fast approval: Funds can hit your account in as little as 24 hours.
Simple usage: No restrictions on how you apply the funds operationally.
No long-term burden: Great for businesses that expect revenue to pick up soon.

Cons

High cost: Interest rates and fees can be steep compared to traditional loans. See our breakdown of merchant cash advance pros and cons.
Short terms: You need a solid repayment plan to avoid cash flow stress.
Collateral may be required: Especially for newer or low-credit businesses.

What Do Lenders Look For?

To get approved, most working capital lenders want to see:

At least 6–12 months of trading history
Proof of stable cash flow, usually over £50k–£100k per year
Basic financial documents like bank statements and profit & loss reports
A fair-to-good credit score or a personal guarantee

Need help pulling this together? Use our funding tools or contact our team.

What Should You Avoid Using It For?

Working capital loans are for everyday operations—not long-term growth or personal use. Avoid using them to:

Buy property or heavy equipment
Fund expansion or M&A activity
Cover personal expenses or unrelated debts

If you need help picking the right product, explore other financing options.

How Fast Can You Get Funded?

Online lenders like iwoca, PayPal, and others can approve and fund working capital loans in under 48 hours. Traditional lenders may take several days to a few weeks, depending on their process.

If speed matters, compare top UK short-term providers in our guide: Top Short-Term Business Loan Providers.

Explore Other Short-Term Finance Options

Not sure if a working capital loan is the right fit? There are other short-term funding options that might suit your needs better depending on your cash flow cycle, business model, and repayment preference.

Merchant Cash Advance (MCA): Best for businesses with strong daily sales. An MCA provides a lump sum in exchange for a percentage of future card takings. Repayment adjusts with your revenue—ideal if income fluctuates.
Invoice Finance: If unpaid invoices are tying up your cash, this option lets you unlock funds based on outstanding customer invoices. It’s popular with B2B firms who invoice on net terms but need cash sooner. Learn more at money.co.uk.
Revolving Credit: Like a credit card for your business. Draw what you need, repay, and reuse the facility. It offers more flexibility than fixed-term loans and suits businesses with unpredictable expenses. See a full breakdown here.

For a side-by-side comparison of providers, visit our Top Short-Term Business Loan Providers guide.

Final Thoughts + Next Steps

A working capital loan can be the difference between missing payroll and staying fully operational. But like any funding, it needs careful planning. Know your numbers, compare your options, and read the terms.

Want tailored advice? Try our loan calculator or contact our team to get started today.

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