In a nutshell
A working capital loan funds the day-to-day costs of running a business — wages, rent, stock, supplier bills and tax — while cash is tied up between paying out and getting paid. It can be a lump-sum term loan, a revolving line of credit, an overdraft or a facility secured by invoices or stock. The right structure depends on whether your cash gap is a one-off or a recurring part of the business cycle.
Key points
- Working capital is current assets minus current liabilities — the money that runs the business.
- Measure the size and timing of your cash gap before choosing a product.
- Recurring gaps suit revolving limits; one-off gaps suit term loans.
- Invoice and stock-based facilities grow as the business grows.
- Purpose
- Day-to-day running costs
- Structures
- Term, revolving, invoice, stock
- Security
- Unsecured or secured
- Sized on
- Turnover or assets
Plenty of profitable businesses run short of cash. The reason is almost always working capital: money leaves before it comes back. A working capital loan fills that space. This entry explains how to size the gap, which structure suits which pattern, and how lenders set the amount.
What is the working capital gap?
Every business has a cycle. A retailer buys stock, holds it, sells it and — if it sells on account — waits to be paid. A builder pays for labour and materials, invoices on progress, then waits for the client. The time between cash going out and cash coming back is the cash gap, and it has to be funded by something: the owner’s savings, supplier credit, or finance.
You can estimate your own cycle in days:
| Component | What it measures |
|---|---|
| Stock days | How long stock sits before it’s sold |
| Debtor days | How long customers take to pay |
| Creditor days | How long you take to pay suppliers |
| Cash gap | Stock days + debtor days − creditor days |
The longer the gap and the larger your monthly costs, the more working capital the business needs. Growth makes the gap bigger, not smaller, because each new sale needs funding before it’s paid for. Our guide to profit vs cash flow walks through this with a worked example.
Which products fund working capital?
- Line of credit — a revolving limit for gaps that come and go. Interest only on what’s drawn.
- Overdraft — similar, built into your transaction account, usually from a bank.
- Unsecured term loan — a lump sum for a one-off gap, such as a large order or a slow quarter.
- Invoice finance — cash against unpaid business invoices, growing with sales.
- Stock or trade finance — funds inventory purchases, repaid as goods sell.
- Property-secured facility — for larger, longer-running needs when equity is available.
How do you choose between them?
Ask two questions:
- Is the gap recurring or one-off? Recurring gaps suit revolving facilities. One-off gaps suit term loans.
- What’s tying up the cash? If it’s invoices, invoice finance. If it’s stock, stock or trade finance. If it’s general timing, a line of credit or term loan.
A specialist can help you match the product to your cycle — you can start with a 60-second enquiry.
How do lenders size a working capital facility?
For unsecured facilities, lenders read bank statements to understand turnover, seasonality and existing commitments, then set a limit the business can use and clear within a normal cycle. Unsecured working capital options for trading businesses are typically $5,000 to $500,000.
For asset-based facilities, the amount tracks the asset: a share of eligible invoices for invoice finance, a share of stock value for inventory finance, or the available equity for property-secured lines.
What should you watch for?
- Funding long-term needs with short-term money. Using working capital facilities for fit-outs or vehicles ties them up and leaves you short when the real gap arrives.
- Permanent drawdown. A revolving facility that never comes back towards zero is signalling a structural problem, not a timing one.
- Tax timing. Quarterly BAS is generally due on 28 October, 28 February, 28 April and 28 July. Planning for those dates avoids a working capital crunch turning into an ATO debt.
Can you reduce the working capital you need?
Finance fills the gap, but shrinking the gap is often cheaper. Common levers include:
- Invoicing faster — on completion, not at month end — and following up overdue accounts promptly.
- Negotiating supplier terms that line up better with when you get paid.
- Holding less slow-moving stock, freeing cash tied up on shelves.
- Asking for deposits or progress payments on larger jobs.
- Setting aside GST and PAYG in a separate account as they’re collected.
Most businesses combine a few of these with a facility sized to what’s left. business.gov.au’s cash flow resources include templates for mapping your own cycle.
Terms used in this entry
- Cash gap — the days between paying out for inputs and receiving payment from customers. Glossary →
- Debtor days — how long, on average, customers take to pay you. Glossary →
- Current ratio — current assets divided by current liabilities. Glossary →
- Revolving facility — a limit that becomes available again as you repay it. Glossary →
Every term is defined in the business finance glossary, with links back to the full entries.
Worked example (illustrative)
Illustrative only. A commercial cleaning company pays staff fortnightly and invoices clients monthly on 30-day terms. Its cash gap is roughly 45 days of wages. As it wins new contracts, that gap grows with every hire.
A lump-sum loan would help once but not as the business keeps growing. An invoice finance facility, advancing cash against each month’s invoices, funds wages from the work itself and grows with new contracts. A small line of credit sits alongside it for months when a client pays late.
Is a cash gap holding your business back?
Working capital finance can let you pay staff and suppliers on time, take on bigger work and stop juggling. The enquiry takes about a minute and there’s no credit check when you first enquire. We don’t hand your details to a string of lenders — a real person reviews your cash cycle and calls you. Please describe your turnover, customer payment terms and the size of your usual gap as accurately as you can so we can match you properly first time.
Frequently asked questions
What counts as working capital?
In accounting terms, current assets (cash, receivables, stock) minus current liabilities (supplier bills, short-term debt, tax owed). In practice it's the money a business needs to keep operating while waiting to be paid.
Is a working capital loan a specific product?
It's more of a purpose than a product. Lenders use the label for unsecured term loans, lines of credit, overdrafts and invoice facilities used to fund running costs.
How much working capital funding can I get?
Unsecured working capital options for trading businesses are typically $5,000 to $500,000, sized on turnover and bank statements. Property-secured facilities can be larger.
Can I use working capital finance to pay tax?
Yes. Covering BAS, PAYG or super obligations is a common use, particularly when timing rather than profitability is the problem.
What's the working capital cycle?
The time between paying for inputs such as stock or wages and receiving payment from customers. The longer the cycle, the more working capital a business needs.