Working capital loans

Working capital is the fuel that keeps a business running between one payday and the next. When there’s enough of it, nobody notices. When there isn’t, everything gets harder: suppliers want cash up front, staff overtime gets cut, and opportunities get turned down because there’s nothing to fund them with.

Why growing businesses run short

It sounds backwards, but strong growth is one of the most common reasons owners need working capital funding. Here’s why:

• More orders mean more stock bought in advance.
• More customers on credit terms mean more money sitting in unpaid invoices.
• More staff mean bigger wage runs before the extra revenue lands.
• Bigger contracts often pay in stages, with the first payment weeks after work starts.

A business turning over $1 million a year with customers paying on 45 days has roughly $120,000 tied up in debtors at any time. If it grows to $1.5 million, that figure rises to about $180,000. The extra $60,000 has to come from somewhere.

Structures to choose from

Structure	Works best for	Watch out for
Unsecured term loan	A one-off step up in stock or staff	Fixed repayments even in quiet months
Line of credit	Needs that rise and fall during the year	Using it as permanent funding
Invoice finance	Businesses with reliable customers on long terms	Fees per invoice, customer notification on some products
Property-backed facility	Larger, longer-term working capital	Property is at risk if things go wrong

For smaller and shorter needs, an unsecured loan or cash flow loan is usually the quickest. For a bigger, longer-lasting gap, a second mortgage or other property-backed loan can provide more room on longer terms.

Working out how much you need

A simple approach is to look at your cash conversion cycle: how many days pass between paying for stock or labour and collecting from customers. Multiply your average daily costs by that number and you have a rough idea of the working capital your business needs at its current size. Then add the growth you’re planning.

Your accountant can do this properly, but even a rough estimate stops two common mistakes: borrowing too little and coming back in three months, or borrowing far more than the business can put to work.

What lenders want to see for working capital

Beyond bank statements, a working capital lender is trying to understand whether the extra funding will turn into cash. It helps to show a list of your larger debtors and how long they usually take to pay, an idea of how fast your stock turns over, and any contracts or purchase orders behind the growth. A short explanation of why you need more working capital now, such as a new customer or a bigger season, does more for an application than you’d expect.

Getting it quickly

Most working capital lenders decide on bank statements, trading history and existing commitments. For smaller amounts, same-day funding is possible once statements are linked and the paperwork is signed. If you’re applying for a larger facility or a line of credit, the lender may also ask for recent financial statements, a list of debtors or a cash flow forecast. Having those ready keeps the timeline short.

An illustrative example

A Sunshine Coast landscaping supplies yard has grown from two trucks to five in eighteen months, and now sells to several large builders on 30-day accounts. The yard is profitable, but it’s buying bulk loads of soil, stone and timber weeks before the builders pay. It takes a $150,000 line of credit, drawing on it when big orders land and repaying as builders settle their accounts. Illustrative only.

Signs you’re using working capital funding well

• The balance goes up and comes back down over the trading cycle.
• It’s funding things that become cash: stock that sells, work that gets invoiced.
• Repayments fit comfortably inside normal weekly takings.
• You’re reviewing debtor days and stock levels, not just borrowing more.

Signs to stop and rethink

• The balance only ever rises.
• You’re using one facility to make repayments on another.
• Losses, not timing, are causing the shortfall.

If any of those sound familiar, sit down with your accountant before borrowing more. The business.gov.au cash flow guide is a good place to start.

Ask about working capital

Tell us your turnover, what’s tying up your cash and how much you think you need. No credit check is run when you enquire, your enquiry isn’t passed around to a list of lenders, and one person will call to work through the right structure with you. The more accurate your numbers, the better the fit. Start an enquiry.