How working capital impacts your business resilience

11 Apr 2024

Learn how effective working capital management impacts your business resilience and how you can employ a clear financial strategy.

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Working capital serves as a critical indicator of your business’s operational and financial efficiency. 

In a volatile economy, both survival and success require you to build business resilience. Adequate working capital inherently impacts this resilience, making it vital to employ a clear financial strategy.

The relationship between working capital and business resilience

Working capital plays a pivotal role in financing your short-term business obligations. 

A 2024 British Business Bank report reveals that small businesses have consistently increased their use of external finance over the last year, with cash flow and working capital named as the top reasons for small businesses to seek external financing options. 

Sufficient working capital allows you to embrace opportunities during times of growth and sustain your business operations during times of financial uncertainty. 

Achieving optimal working capital management involves striking a balance between your liquidity and your long-term assets. Insufficient working capital can lead to missed business prospects and delayed payments to suppliers, ultimately resulting in business stagnation.

Conversely, excessive working capital can indicate an ineffective use of available capital. Focusing too much on increasing your working capital can lead to shortages in your fixed capital and assets, leaving your business financially unbalanced. 

How lending can help balance your working capital more effectively 

Most successful companies are no strangers to borrowing from lenders – in fact, relying on business finance is a common strategy for boosting working capital. 

One advantage of this strategy is increased financial flexibility. 

According to Investopedia, an immediate benefit of working capital loans is that these loans are “easy to obtain” and allow business owners to “efficiently cover any gaps in working capital expenditures.”

With extra funding from a lender, your business can weather unexpected downturns or, alternatively, capitalise on growth opportunities. Leveraging borrowed funds can also enhance your return on equity, strengthening your relationship with stakeholders in your business.  

While there are many different types of loans to choose from, working capital finance is often the best option for small and growing businesses to increase working capital. 

Working capital finance helps you optimise your cash flow by facilitating better management of receivables and payables. By providing you with immediate liquidity, working capital finance enables you to meet short-term financial obligations without disrupting other operational expenses, like payroll.

Overall, efficient working capital management, supported by working capital finance, can enhance your business’s competitive position. 

Understanding the risks of lending for boosting working capital

While working capital finance and other types of business loans can provide immediate liquidity, there are risks to consider before signing up for a loan. 

When building business resilience, you must stay mindful of adding new financial obligations to the mix. 

Lenders often enforce strict repayment schedules, with missed payments posing risks to your credit score and financial stability as a business. Additionally, interest rates on loans can add to your business expenses, potentially reducing profitability if you are not generating enough revenue. 

Achieving true business resilience requires you to align your lending needs with your working capital requirements and operational expenses. By balancing each of these three factors, you can ensure sustainable financial health for your business.

Foster financial resilience with Funding Options by Tide

Funding Options by Tide helps you choose a lender and boost your working capital with confidence. 

At Funding Options by Tide, our brokerage services connect you with more than 120 lenders available within the UK. Through our platform, you can compare different loans, loan terms, and financing options to choose the best lending product for your business. 

Find a suitable lender today to start building financial resilience into your business. 

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business and personal credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.

Funding Options
Funding Options

Editorial team

Business Finance

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