Working capital finance is the most in-demand funding choice for businesses

Working capital was the most in-demand funding choice for businesses in most sectors in the first half of 2024, according to analysis by business financial platform Funding Options by Tide.

The research showed that working capital finance came out as the number one business enquiry for 11 out of the 16 business sectors analysed in this period.

Working capital (sometimes referred to as net working capital) is the money your business needs to be able to operate from day to day. In simple terms, it’s the cash you have left after you account for money coming in and money going out over any given period. Working capital finance refers to business financing designed to cover your short-term operational expenses. Oftentimes, businesses leverage working capital finance to fund specific growth projects (for example, major contracts or expansion into new markets), but it can also be used to bridge the gap for short-term expenses or to improve cash flow for seasonal variation.

Simon Cureton, Chief Executive Officer at Funding Options by Tide, said “Thanks to inflation, businesses paid more for raw materials, wages, and inventory, leading to tighter cash flows. The increased costs came amid economic uncertainty, inflationary pressures, and supply chain challenges. Against this tough economic backdrop, securing working capital became essential for businesses to maintain liquidity, manage day-to-day expenses, and ensure resilience.” 

Businesses appear to be focusing on working capital to safeguard short-term financial health. Working capital covers, amongst other things, general expenses, bridging cash flow gaps and seizing short term opportunities, making it a popular and versatile solution for businesses.

Cureton added “Seasonality can also impact demand during the year. We tend to see higher demand for finance from businesses generally towards the end of the year, in October and November in particular leading up to Christmas and the New Year. It’s obviously a key period for small businesses, but it’s also the time they’re planning their capital allocation for the following year.

“Despite the recent change in Government, we’re not yet sure what the policy path for small businesses is going forward. We know from our work that small businesses are generally more positive. This sentiment, combined with new lenders on the market, is opening up the space which is a plus for small business resilience and growth.”