Quick answer
A working capital loan funds the day-to-day running of a business when cash going out runs ahead of cash coming in, such as paying wages, stock or suppliers before customers pay. It can be a short-term loan, a line of credit or invoice finance. The right choice depends on why the gap exists: a one-off squeeze suits a short loan, a recurring gap suits a line of credit, and slow-paying customers suit invoice finance.
Key points
- Working capital is the gap between paying out and getting paid.
- The cause of the gap decides the best product.
- Short loans suit one-off gaps; credit lines suit recurring ones.
- Finance smooths timing but won't fix a margin problem.
- Typical size
- $5,000 to $500,000 unsecured
- Common uses
- Wages, stock, supplier deposits, BAS
- Forms
- Short-term loan, line of credit, invoice finance
- Best compared with
- Line of credit, invoice finance
“Working capital loan” covers several different products that all promise the same thing: cash in the account when you need it. They aren’t interchangeable. The cheapest and safest choice depends on what’s causing the gap, so this page starts there.
Why is cash short?
Most working capital gaps come from one of four causes:
- A one-off spike. A big stock order, a new contract’s start-up costs or an equipment breakdown.
- A seasonal cycle. Retail before Christmas, tourism before summer, agriculture before harvest.
- Slow-paying customers. Work is done and invoiced, but payment takes 30, 60 or 90 days.
- Thin margins. Each month the business spends a little more than it brings in.
The first three are timing problems that finance can fix. The fourth is a profitability problem; borrowing only delays it.
Which product fits which gap?
| Cause of the gap | Usually fits | Why |
|---|---|---|
| One-off spike | Short-term unsecured loan | Known amount, repaid as the spike passes |
| Seasonal cycle | Line of credit | Draw before the season, repay after |
| Slow-paying customers | Invoice finance | Grows with your sales ledger |
| Large stock purchase | Short loan or trade finance | Matches the stock turn |
| Tax bill | ATO payment plan or tax debt loan | Compare both on total cost |
| Thin margins | Accountant first | Finance won’t fix pricing |
How do the main working capital options compare?
| Short-term loan | Line of credit | Invoice finance | |
|---|---|---|---|
| How you get it | Lump sum | Draw as needed | Advance against invoices |
| Repayment | Fixed, often weekly | Flexible, minimums apply | When customers pay |
| You pay for | The whole loan | What you draw, plus line fees | The invoices funded |
| Paperwork | Bank statements | Bank statements | Debtor ledger and customer details |
| Best for | One-off gaps | Recurring gaps | Long payment terms |
What do lenders look at for working capital?
- Turnover trends over six to twelve months.
- How the account is run: dishonours, overdrawn days.
- Existing loans already drawing on weekly takings.
- Lodgement status with the ATO and any payment plans.
- For invoice finance: who your customers are and how reliably they pay.
An illustrative example
Illustrative example. A Brisbane wholesale florist’s busiest periods are Valentine’s Day and Mother’s Day. Each year she pays growers upfront for about $60,000 of stock, then gets paid by retail customers over the following month. A short-term loan each season would mean two sets of fees and repayment schedules. A $70,000 line of credit, drawn before each peak and repaid as customers pay, costs less over the year and is ready when needed.
How should you compare working capital offers?
- Total cost over a realistic usage pattern. For a credit line, estimate how much you’ll actually draw and for how long.
- Line or account-keeping fees charged even when nothing is drawn.
- Repayment frequency and how it lines up with your takings.
- Exit terms if you no longer need the facility.
Our compare by repayments page helps match the repayment style to the way money comes into your business.
How do you size a working capital facility?
Borrowing too little means coming back in a month; borrowing too much means paying for money you don’t use. A simple sizing method uses your own records:
- Map a typical cycle. How many days from paying for stock or wages to being paid by customers?
- Multiply by daily outgoings. If the business spends about $3,000 a day and the cycle is 40 days, about $120,000 is tied up.
- Subtract what you already hold. Cash on hand and existing facilities.
- Add a buffer for a slow-paying customer or a busy month.
| Cycle element | Where to find it |
|---|---|
| Days stock is held | Stock records or supplier invoices |
| Days customers take to pay | Debtor ledger or invoice dates versus receipts |
| Days you take to pay suppliers | Supplier terms |
| Daily outgoings | Bank statements over a few months |
The gap tells you both the size and the shape of the need. A gap that’s the same every month suits a line of credit. A gap that grows with sales suits invoice finance. A one-off spike suits a short loan.
What else can shrink the gap?
Finance isn’t the only lever. Shorter customer payment terms, deposits on large jobs, negotiating longer supplier terms and invoicing promptly can all reduce how much working capital the business needs. business.gov.au has practical guidance on improving cash flow that’s worth reading alongside any loan.
Talk through your cash flow gap
Telling us about a cash flow squeeze doesn’t affect your credit file; a check only follows if you choose to proceed. We don’t spray your details across a list of lenders. A real person asks what’s causing the gap, then compares a short loan, a credit line and invoice finance so you can see which fixes it at the lowest cost.
Please describe the gap accurately on the form, including existing debts, so the first suggestion is the right one. Send your enquiry, or rank the options yourself with the business loan comparison tool before you check your options.
Frequently asked questions
What counts as working capital?
Broadly, the money tied up in running the business day to day: stock, money owed by customers, and cash to pay wages, rent and suppliers. A working capital loan tops up that pool when timing is tight.
Is a working capital loan the same as a cash flow loan?
The terms are used almost interchangeably. Both describe finance sized on trading and used for operating costs rather than long-lived assets.
Can I use a working capital loan to pay the ATO?
Some businesses do, but compare it with an ATO payment plan first. Our tax debt loans page sets the two side by side.
How quickly can working capital finance be arranged?
Unsecured short-term loans and lines of credit can often be set up quickly if bank statements are available electronically and the business has a clean trading history.
What if the business is short of cash every month?
That can signal a pricing or margin issue rather than a timing one. Borrowing may cover it briefly, but it's worth talking to your accountant about the underlying cause.