Education

What is the interest rate on a working capital loan?

16 Sept 2021

Working capital finance facilities are designed to help businesses improve their working capital and encourage growth but just like other loans, there can be varying interest rates associated with these types of loans. We explore interest rates and why working capital is a great business loan option to consider.

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When it comes to choosing the right finance product for your business, there are a few key things to consider before applying such as how long you’ll be committed to repayments and what the interest rate would be. Any type of business loan comes with an interest rate set by the lender so when you’re considering which loan works best for you, it’s important to understand what the terms are of the loan too.

What is working capital?

Working capital is a finance product created to be flexible business finance, helping businesses develop and grow. Its name ‘working capital’ means it will work however you need it to, giving your business more capital to invest in improving your products or services.

All kinds of businesses use working capital finance for a variety of reasons, but all have the same goal,  to free up capital within the business to help reinvest in the business.

What is a working capital loan?

A working capital loan is a short or medium-term loan created for flexibility. Depending on how big your business is, will depend on how much you can borrow.  The lender you choose will consider all your business facets before giving you a loan. Working capital loans are designed to free up capital, helping your cash flow and allowing you to grow your business.

What is the interest rate on a working capital loan?

Like all business loans, working capital loans have an interest rate associated with them and the rate will vary from lender to lender. Usually, the interest rate on a working capital loan can be between 16- 35% depending on the type of business you’re running and how much you borrow. 

business loan interest

Comparing working capital loans and what you should consider

If you’re considering a form of working capital, it’s important to know the options and understand what might be best for your own business. The most common types of working capital loans available for small businesses are:

  • Revolving credit facilities - These are like overdrafts in that they’re an agreed amount of funds a business can use as and when they need. They're set up so you only pay interest on outstanding funds making them good for businesses who need capital for operational cash flow and only need to borrow a certain amount.

  • Invoice financing- A great option for businesses who invoice a lot, invoice financing allows you to free up capital that is owed to you by lending a % of an invoice owed until it is paid to the business. 

  • Merchant Cash Advance- Great for businesses using credit or debit card transactions and need a short-term loan option. MCA’s offer a percentage of the sales recorded through your card terminal which is great for hospitality, although lenders will want specific terminal readers and other requirements.

  • Overdrafts- Much like revolving credit facilities, overdrafts are a pre-approved amount of funds businesses can quickly access when they need. The issue with overdrafts is they’re becoming far less accessible to anyone as bankers become stricter with lending.

  • Asset refinance- Another good option for businesses with big assets like machinery or vehicles as asset refinance uses a business's assets to free up capital.

At Funding Options, we’re dismantling the funding barriers by providing business owners like you with quick and easy access to finance. Our Funding Cloud technology helps to validate your business profile and matches you with the funding industry’s largest lender network.

Our dedicated Business Finance Experts are always on hand to help you through the process, from application to money in the bank. So, what are you waiting for? Kickstart those growth plans with a working capital loan today!

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