Working Capital Loan

With a working capital loan, you can get fast funding for your everyday business operations. Even if your business isn't making enough to cover operational expenses, you're still covered. This can be useful if your business experiences reduced activity or sales during certain times of the year.

Key working capital options include short-term loans, invoice financing and business lines of credit.

What is working capital finance and how does it work?

A working capital loan provides funding to cover your business's day-to-day operating costs. You can use it to bridge cash flow gaps, pay bills and staff, buy inventory or cover marketing expenses, which makes it useful if your business has seasonal or fluctuating sales.

Working capital loans usually have shorter terms, from a few months to around 5 years depending on the lender, and repayments can often be tailored to your cash flow. Most lenders let you apply online, and you could receive funds in as little as 1 business day. How much you can borrow depends on the lender and your ability to repay.

A business line of credit is one of the most flexible working capital options. You can draw funds up to a set limit and only pay interest on the amount you use, which makes it well suited to seasonal demand or unexpected cash flow gaps.

Invoice finance is another option. It lets you access the value of your unpaid invoices while you wait for customers to pay.

What are the pros and cons of working capital finance?

Pros.

• Quick and easy funding. These loans generally have easy applications and fast turnaround times. This means that you don't have to wait to get finance.
• Unsecured options available. You can choose an unsecured option and not put up business or personal assets.
• Match repayments with cash flow. This takes off the pressure of repayments when business is low.

Cons.

• Can be more expensive. The interest rate may be higher than for a standard business loan. The loan can also be risk-based, so interest rates will depend on your credit score. The better your score, the lower the rate and vice versa.
• Short terms. Loan terms are generally short, so it may help you in the short run. But if you need finance again, you'll have to reapply or find a longer term solution. Additionally, if you borrow a large amount, short terms means large monthly repayments.

What should I consider before I apply?

Here are a few things you need to consider before you apply:

• How much does the loan cost? As useful as the loan is, you also have to pay it back. Take into account the interest rate and also loan term. Will you be able to pay back the loan and most importantly, can your business afford it?
• How much do I need to borrow? Consider how much you need to borrow and borrow only what your business needs. You'll have to pay it back with interest, after all, and you may end up borrowing more than what you can afford.
• Is it secured or unsecured? The loan can be either secured with an asset or unsecured. You could put up an asset and borrow more, or go for an unsecured option. Unsecured loans generally come with lower borrowing amounts.
• Are repayments flexible? Make sure you check if the lender offers flexible repayment terms. This can help you manage repayments during the ebbs and flows of your business cashflow.
• How does it compare against other options? There are other ways to get finance, including business overdrafts or invoice financing. Consider other options and look into how it compares. Are there cheaper, more flexible options?
• How long do you need funding for? If you only need funding for a short period, this loan can be useful. But if you need long term funding, this loan is unsuitable.

Is my business eligible for a working capital loan?

The eligibility criteria will differ based on the lender. In general, you'll need to meet the following criteria:

• Minimum income. You'll need to meet the lender's minimum income requirement to qualify. This can be a certain amount of monthly sales.
• Age of business. Your business may need to be in operation for a certain amount of time. Some lenders may require your business to be in business for over 6 months, but it can range up to a year.
• Active ABN or ACN. You'll need an active Australian Business or Company Number to apply.
• GST registration. Your business also may need to be registered for GST.

Your credit history also plays a significant role in eligibility. Lenders check both your business and director credit files, and a stronger credit profile widens your options and can lower your rate.

Apart from this, as for all loans, your business will have to demonstrate it can repay the loan.

How can I apply for a working capital loan?

🤔 Work out how much you need to borrow and what you can afford. You can use a personal loan calculator to help you.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page.
✅ Select a lender. Click "Go to Site" to be directed to the lender's page, or "More Info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.

Frequently Asked Questions

• What is working capital finance?

  Working capital finance is a type of business loan used to cover everyday operating expenses, rather than to buy long-term assets. It's designed to manage the timing gap between paying suppliers and staff and receiving payment from customers.

• What are the most common types of working capital finance in Australia?

  The most common types are business overdrafts (lines of credit), invoice finance (where you borrow against unpaid invoices), and short-term unsecured business loans from fintech lenders.

• When should my business use working capital finance?

  It's ideal for funding seasonal inventory build-up before a busy period, managing slow payment cycles from large corporate or government clients, covering unexpected expenses, or simply ensuring you have enough cash on hand to pay weekly wages and suppliers on time.

• What is the difference between working capital and a term loan?

  A term loan provides a lump sum for a specific, large purchase (like a machine or property) and is paid back over several years. Working capital finance is a short-term, often revolving, facility to manage the day-to-day cash flow cycle of the business.

• How do I know how much working capital I need?

  Calculate your working capital cycle by adding the number of days you hold inventory to the number of days it takes customers to pay you, then subtract the number of days you have to pay your own suppliers. A positive number indicates a cash gap that may need financing.

Written by

Alex Jeffs

Publisher

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Alex Jeffs is the senior publisher for automotive content at Finder. He has tested vehicles everywhere from Tasmania to Oodnadatta. See full bio

Alex's expertise

Alex has written 33 Finder guides across topics including:

• Automotive industry
• Car finance
• Car insurance
• Personal finance