Working capital funding

Working capital funding is typically sought by trading businesses facing a timing mismatch between cash going out and cash coming in: a distributor building stock ahead of peak season, a services firm carrying payroll while clients settle on sixty-day terms, or a manufacturer scaling output faster than its cash conversion cycle allows. It suits companies with an established trading history and predictable, if lumpy, revenue rather than pre-revenue start-ups.

It is generally not the correct structure for one-off capital expenditure or for funding losses in an underperforming business — those requirements are better served by asset finance or restructuring capital respectively. GFG's initial assessment focuses on whether the underlying trading pattern, not a temporary shortfall, is driving the need for facility headroom.

A revolving credit facility sets a committed limit that a business can draw, repay and redraw as trading requires, with interest charged only on the amount outstanding. Cash-flow term loans instead advance a fixed sum repaid over an agreed schedule, sized against a multiple of recurring EBITDA rather than physical collateral. Both structures are reviewed periodically against covenants tied to leverage, interest cover or minimum liquidity.

Private credit providers active in this space will often blend the two: a revolving tranche for day-to-day flexibility alongside a term tranche for a specific growth initiative. Facility agreements commonly include headroom tests and reporting undertakings — monthly management accounts, aged debtor and creditor reports — that allow the funder to monitor performance between formal reviews without requiring constant renegotiation.

Underwriting for business funding of this kind centres on historic and forecast cash generation, the seasonality and concentration of the customer base, and the quality of management information. A business with three years of filed accounts, clean management accounts and diversified revenue will access a wider pool of providers and better pricing than one presenting incomplete records or heavy reliance on a single customer.

Security requirements vary by provider and risk appetite. Bank and alternative lenders alike commonly ask for a debenture over the company's assets and, for smaller or owner-managed businesses, a personal guarantee from directors. Unsecured cash-flow lending is available in the market but is priced to reflect the additional risk the funder is carrying without a fallback claim over assets.

Pricing for working capital facilities is generally quoted as a margin over a reference rate such as SONIA, SOFR or the Bank of England base rate, plus an arrangement fee and, for revolving lines, a non-utilisation fee on undrawn headroom. Indicative all-in cost for bank-provided facilities to established businesses might sit in the mid-single digits above base rate; alternative and private credit providers typically price higher to reflect faster decisioning and lighter covenant packages.

The principal cost drivers are the strength of free cash flow relative to the facility size, the quality and enforceability of any security, sector risk, and the leverage already carried by the business. A facility that is comfortably covered by forecast cash generation, secured against unencumbered assets, will attract materially better terms than one structured at the edge of affordability.

GFG begins with a short assessment call to understand the trading pattern, existing facilities and the amount and purpose of headroom required, followed by a review of management accounts, forecasts and any existing lender arrangements. From this GFG identifies which providers in its network are likely to have appetite for the specific sector, size and structure, and prepares an information pack suited to each.

Terms are typically indicative within one to two weeks of a complete pack, with full documentation and drawdown for a straightforward facility achievable within three to six weeks. As set out across the site, GFG's fees are success-based and become payable only once funding completes; there is no upfront fee for the assessment or introduction stage.