Quick answer
A working capital loan funds the everyday running costs of a business, such as wages, stock, rent and supplier bills, while you wait for customers to pay. It is usually unsecured and sized on turnover and bank statements, typically between $5,000 and $500,000, though property can support larger amounts. The right size comes from your working capital cycle: how long cash is tied up between paying suppliers and collecting from customers.
Key points
- Working capital is the cash tied up in running the business day to day
- Loans are sized to the working capital cycle, not to annual turnover alone
- Usually unsecured, typically $5k to $500k; property supports larger amounts
- Fixing slow collections can shrink the amount you need to borrow
- Used for
- Wages, stock, bills
- Typical size
- $5k – $500k unsecured
- Bigger needs
- Property-secured to $5m
- Credit issues
- Case by case
What is working capital, in plain English?
Working capital is the cash your business needs just to keep the doors open between paying for things and getting paid for them. Stock sitting on shelves, materials on a job site and invoices waiting in a customer’s inbox all represent money that’s already left your account but hasn’t come back yet.
Accountants define it as current assets minus current liabilities. For a business owner, a more useful definition is this: how much cash do I need to carry to get from “I’ve paid for it” to “they’ve paid me”?
A working capital loan funds that carrying cost. It’s not for buying a building or a business. It’s for the everyday: wages, rent, suppliers and stock.
How do I work out my working capital cycle?
This is the heart of the 1-2-3 approach on this page. Three numbers tell the story:
- Stock days. How long stock or materials sit before they’re sold or used on a job.
- Debtor days. How long customers take to pay after you invoice them.
- Creditor days. How long you take to pay your own suppliers.
Your cycle is stock days plus debtor days, minus creditor days. If stock sits for 30 days, customers pay in 40 and you pay suppliers in 20, your cash is locked up for about 50 days.
| Business (illustrative) | Stock days | Debtor days | Creditor days | Cycle |
|---|---|---|---|---|
| Café | 5 | 0 | 14 | Negative: customers pay first |
| Electrical contractor | 10 | 45 | 30 | About 25 days |
| Furniture wholesaler | 60 | 45 | 30 | About 75 days |
The café barely needs working capital because customers pay on the spot. The wholesaler needs a lot, because cash disappears into stock and invoices for months. That’s why a single rule of thumb based on turnover is misleading.
How much working capital finance should I take?
Turn the cycle into dollars. Multiply the number of days in your cycle by your average daily outgoings for stock, wages and overheads. Subtract the cash reserves you’re comfortable using. What’s left is the shortfall a loan might cover.
Illustrative example only. A joinery business has a 60-day cycle and average outgoings of a few thousand dollars a day. Its owners want to keep a month of rent and wages in reserve, so they fund the remainder of the cycle with finance rather than draining the buffer. The result is a specific, defensible number they can explain to a lender, rather than a guess.
If you’d like a second pair of eyes on your numbers, you can start a 60-second enquiry and a specialist will talk it through with you, without a credit check at that stage.
What types of finance fund working capital?
Several products do the job, each in a slightly different way:
- Unsecured or cash flow loans, typically $5,000 to $500,000, sized on turnover and statements. See cash flow loans.
- A business line of credit for needs that rise and fall. See business line of credit.
- Invoice finance, which unlocks money tied up in unpaid invoices. See invoice finance.
- Stock or trade finance, built around inventory purchases. See stock finance.
- Property-secured loans from $20,000 to $5,000,000 for larger or longer needs, including when credit history needs a closer look.
Can I reduce how much I need to borrow?
Often, yes. The cheapest working capital is the cash you free up yourself. Business.gov.au’s tips on improving cash flow include invoicing promptly, adjusting payment terms to encourage early payment, managing stock levels and negotiating better supplier deals. Each of those shortens the cycle:
- Shave ten days off debtor days by invoicing on completion instead of month-end.
- Order stock closer to when it sells.
- Ask suppliers for 30-day terms instead of 14.
Combine a shorter cycle with a well-sized facility and you get the best of both: less borrowed, and a buffer for the surprises.
Why does growth make working capital tighter?
This catches many owners out. When sales jump, the business usually needs more stock, more staff hours and more materials up front, while customer payments still arrive on the old timetable. More revenue on paper can mean less cash in the bank for months.
If you’ve just landed a large customer or contract, read our page on winning a big contract. Planning working capital before the growth hits is far easier than scrambling after it.
Warning signs your working capital is too thin
Many businesses don’t realise they’re short of working capital until it bites. Watch for:
- Paying suppliers later and later to make room for wages
- Regular overdrawn days, especially just before customer payments arrive
- Turning down orders because you can’t afford the stock or materials
- Using the tax account to cover everyday costs
- Personal funds topping up the business more than once or twice a year
Any one of these can happen occasionally. Several at once, regularly, suggest the business needs more working capital, whether from a facility, faster collections or a change in terms.
The fix often combines both sides: a well-sized facility plus a shorter cycle. Our page on late-paying customers covers the collection side, and the seasonal cash flow gaps page helps if the squeeze is tied to particular months.
Let’s size your working capital properly
Working capital finance works best when it’s sized to your real cycle. That’s a conversation, not a form-filling exercise, and it’s one we’re happy to have.
Our side of the deal: no credit check when you enquire, a real person who reads your details and calls you, and no spraying your information across a pile of lenders. Your side: tell us accurately about turnover, the amount and what it’s for, so we can get the structure right the first time. Ask about working capital finance.
The 1-2-3, in short
- 1
Measure your cycle
Count the days from paying for stock or labour to collecting the customer's money. That's how long your cash is locked up.
- 2
Turn days into dollars
Multiply the cycle by your average daily costs. That's roughly the working capital the business needs to carry.
- 3
Fund the shortfall
Borrow the part your cash reserves can't cover, then talk to a specialist about the structure that fits.
Frequently asked questions
What's the difference between working capital and cash flow?
Cash flow is the movement of money in and out over time. Working capital is the money tied up in running the business at any moment: stock on the shelf and invoices waiting to be paid, less what you owe suppliers. A working capital loan funds that tied-up amount.
Should working capital be a loan or a line of credit?
If the need is ongoing and goes up and down, a line of credit often suits. If you need a one-off injection, for example to support a step up in sales, a term loan can work well.
Can a growing business need more working capital even though sales are up?
Yes, and it surprises many owners. More sales often mean more stock and more unpaid invoices before the cash arrives, so growth can tighten cash rather than ease it.
Do I need property for a working capital loan?
No. Many working capital loans are unsecured and sized on bank statements. Property becomes useful for larger amounts or longer terms.