Working capital loans

Why do businesses run short of working capital?

Because money goes out before it comes in. A builder buys materials and pays subcontractors weeks before a progress claim is paid. A wholesaler pays a supplier on delivery but gives its own customers 30 or 60 days. A growing business hires and stocks up ahead of new sales.

None of these businesses is necessarily in trouble. They’re carrying a timing gap, and working capital finance exists to bridge it. In fact, some of the healthiest businesses feel the squeeze hardest, because growth eats cash faster than profit replaces it.

How do I measure my working capital gap?

A simple way to see the gap is your cash conversion cycle:

Measure	Question
Stock days	How long does stock sit before it’s sold?
Debtor days	How long do customers take to pay?
Creditor days	How long do you take to pay suppliers?

Cash gap ≈ stock days + debtor days − creditor days. If stock sits for 30 days, customers pay in 45 and you pay suppliers in 20, you’re funding about 55 days of operating costs. Multiply your average daily costs by that number for a rough sense of the gap you’re carrying.

Is it a one-off gap or a recurring one?

• One-off: a big order, a seasonal stock-up, a single large tax bill. A lump-sum cash flow loan or short-term loan fits.
• Recurring: the same gap every month. A business line of credit or overdraft fits better.
• Driven by slow-paying customers: invoice finance or debtor finance grows with your sales.

Choosing the right shape matters as much as choosing the right amount. A lump sum for a recurring gap means paying interest on money that sits idle half the month.

Can I shrink the gap instead of borrowing?

Finance is one lever, but not the only one. You can also:

• tighten your own payment terms and chase overdue invoices promptly,
• negotiate longer terms with key suppliers,
• clear slow-moving stock, and
• invoice the day work is finished rather than at month end.

business.gov.au has practical guidance on setting payment terms, linked below. Combining a modest facility with better terms is often more effective than borrowing alone. Not sure what size facility you’d need? Ask us.

An illustrative example

A commercial cleaning company wins a contract with monthly invoicing on 45-day terms. Wages are paid fortnightly. That leaves roughly two months of wages to fund before the first payment. A line of credit sized to that gap, drawn and repaid each cycle, keeps payroll steady. (Illustrative only.)

What do lenders look at?

Mostly the same things as any cash flow lender: monthly turnover, trading history, how the bank account is run and whether the tax position is in order. If you’re asking for a revolving facility, they’ll also want to understand the cycle, so it helps to explain when money goes out and when it comes back.

What else is working capital loans called?

Lenders, accountants and search engines don’t all use the same words. You’ll also see this entry described as Working capital finance and Operating capital loan. In our A–Z index every one of those names points back to this page, so whichever term you searched, you’ve landed on the same thing. If a lender uses a name you don’t recognise, ask them to describe how the security, the term and the repayments work; that tells you far more than the label.

Where does it sit in the directory?

This entry lives on the cash flow and unsecured shelf. It’s most often used for cash flow and working capital, stock, trade and invoices, and the security usually involved is whatever suits the deal, from nothing at all to property. It is one of the quicker entries to put in place when the paperwork is ready. Its closest neighbours are:

• Business line of credit — A limit you draw on, repay and draw again — interest only on what you use.
• Short-term business loans — Borrow for weeks or months to cover a specific, time-limited need.
• Seasonal business loans — Get ready for the busy months and ride out the quiet ones.
• Business overdraft — A buffer attached to your transaction account for short dips below zero.

To compare all of them at once, filter the Loan Finder by purpose and security.

Common mistakes to avoid

• Starting with the product instead of the purpose. Decide exactly what the money must achieve, then choose the structure that fits it.
• Not comparing secured and unsecured options. The same need can often be met either way; the right answer depends on amount, credit and timing.
• Under-estimating the total cost. Ask for the full amount repayable in dollars, including every fee, before you compare offers.
• Applying everywhere at once. Multiple applications can leave a trail of credit enquiries. One well-prepared enquiry is better.
• Leaving it until the last minute. Facilities are easier to arrange while trading is strong, not in the middle of a crunch.

What should I ask before signing up for working capital loans?

A short list of questions saves a lot of regret. Put these to any lender or specialist before you commit:

1. Which structures did you consider for me? A good specialist explains why one option beats the others for your situation.
2. What’s the total cost in dollars? Compare like with like across secured and unsecured offers.
3. What security or guarantees are needed? Know exactly what’s on the line before you sign.
4. How are repayments timed? Match frequency to how money comes into your business.
5. What happens if things change? Ask about early repayment, top-ups and hardship options.

If an answer is vague, ask again or ask for it in writing. Good lenders are happy to explain their terms clearly.

Keep the engine running

If your business has a timing gap between paying out and getting paid, a working capital facility could take the pressure off. The enquiry takes about a minute, carries no credit check, and goes to a specialist who handles it personally rather than auctioning it to lenders.

The more accurately you describe your turnover, payment terms and gap, the better we can size the right facility. Start your enquiry.