Working capital loans in the UK, sized and costed
For most UK small businesses the cheapest working capital is an arranged overdraft for gaps of weeks and a short-term loan for gaps of months. Invoice finance suits firms waiting on other businesses to pay, and a card-sales advance suits shops and hospitality with steady card takings but no bank facility.
Figures checked 1 November 2026.
What working capital finance is for
Working capital is the cash tied up between paying for things and getting paid for them: stock on the shelf, wages before the weekend trade, a VAT bill before the quarter's invoices clear. Finance for it is short term by design. If the money is buying an oven, a van or a refit, that is an asset loan or asset finance, and it should be priced and termed like one.
How big is your cash gap? A worked example
Before you borrow, size the gap. The house example is a shop taking £5,000 a month on cards. The assumptions below are illustrative; swap in your own.
- Cost of sales at 60% of takings: £5,000 × 60% = £3,000 a month, or £100 a day.
- Cash cycle: stock sits 45 days, card customers pay in 0 days, the supplier gives 30 days. Gap = 45 + 0 − 30 = 15 days.
- Everyday gap: 15 × £100 = £1,500. Most shops carry this from their own cash.
- Before Christmas the shop doubles its stock to 90 days. Gap = 90 − 30 = 60 days × £100 = £6,000 for about 2 months.
What funding that £6,000 peak costs:
- Overdraft at NatWest's 13.37% representative EAR, fully drawn for 2 months: £126.81 interest plus a £150 arrangement fee (1.5%, minimum £150) = £276.81. The fee is most of the cost, and the facility stays for next year.
- 12 month loan at 15%, the middle of our partner's panel range: £498.60 interest over the year, because you keep paying long after the stock has sold. Repaying early cuts that where there is no early settlement fee.
Verdict: for a seasonal peak like this, an overdraft is the right tool and a loan is the wrong shape. A loan earns its place when the gap is permanent, for example because the business has grown and its everyday gap has grown with it.
The main types of working capital finance
| Type | Fits | Published price | Watch out |
|---|---|---|---|
| Arranged overdraft | Gaps of days to weeks, seasonal peaks | Representative EAR 13.30% to 16.85% at Barclays, by limit | Repayable on demand; annual fees |
| Short-term business loan | A permanent gap after growth | Panel 7% to 44% a year; Funding Circle from 6.9% a year | Fixed payments in quiet months |
| Invoice finance | B2B firms waiting on customers to pay invoices | Not published centrally; priced per facility | Useless if your customers pay by card |
| Card-sales advance | Shops and hospitality with steady card takings | One fixed fee; most providers publish no rate card | Not regulated by the FCA; repaying early does not cut the fee |
| Growth Guarantee Scheme facility | Viable firms a lender would otherwise decline | Set by each accredited lender | Overdrafts from £25,001; invoice finance from £1,000 |
Fix the gap before you fund it
Every day you shave off the cash cycle shrinks the loan you need. On the example above, each extra day of supplier credit is worth £100 of working capital you no longer borrow. Ask suppliers for longer terms, hold less slow-moving stock, and chase late B2B invoices weekly. If card processing fees are eating the margin, a free statement review often finds money faster than a lender will. Compare our partner's more than 200 lenders only once the gap is the right size.
Related reading: overdraft vs loan, fast business loans if the gap is already here, and the business loan calculator.
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Questions people ask
What is a working capital loan?
Short-term borrowing to pay running costs such as stock, wages, rent and VAT while you wait for sales or customer payments to come in. It differs from an asset loan because nothing is bought that the lender can repossess, so it is usually unsecured and priced on your trading record.
What interest do working capital loans charge?
It depends on the product. Arranged bank overdrafts publish representative EARs of 16.85% (Barclays), 14.54% (HSBC), 13.37% (NatWest), 14.94% (Santander), plus fees. Unsecured short-term loans on our partner's panel run 7% to 44% a year. Card-sales advances charge one fixed fee instead of interest, and most providers do not publish a rate card.
How do I get a working capital loan?
Work out the size of the gap first (the worked example on this page shows how), then gather three to six months of bank statements, your latest accounts and a simple cash flow forecast. Ask your own bank about an overdraft, and compare it with at least one alternative lender before you sign anything.
Can a new business get working capital finance?
It is harder, because most lenders price on trading history. A Start Up Loan (£500 to £25,000 at a fixed 7.5% a year) can fund early running costs for a business trading less than 5 years (60 months), and CDFIs lend to businesses that banks turn down.
What is merchant working capital?
The name payment providers give to a card-sales advance: funding offered to businesses that take card payments through them, repaid as a percentage of every card sale until the balance is met. Square's version is based on your Square sales data, not your credit history and is not regulated by the FCA.
Can government schemes help with working capital?
Yes. The Growth Guarantee Scheme backs overdrafts, invoice finance and term loans from accredited lenders, with facilities up to £2m; overdrafts and invoice finance run up to three years. The guarantee goes to the lender, so you still repay in full.
Sources
Every figure on this page comes from the lender's or scheme's own published page, read on 1 November 2026. Panel rate ranges come from our partner's lender-panel catalogue, checked 1 September 2026. We do not use comparison sites as sources.
- Barclays, business overdrafts
- HSBC, business overdrafts
- NatWest, business overdrafts
- Santander, business overdrafts
- British Business Bank, Growth Guarantee Scheme
- Square, Cash Advance
- Funding Circle, business loans
- Funding Circle, small business loans
- British Business Bank, Start Up Loans guidance
- business.gov.uk, Applying for a Start Up Loan
- British Business Bank, What to do if a bank turns you down
- British Business Bank, Who qualifies for a loan from a CDFI?