Working capital loans fund the day-to-day running of a business: the wages, rent, suppliers and tax that must be paid before customers have paid you. A business can be profitable on paper and still run out of cash, because the money leaves on one date and returns on another. A working capital loan fills the space between those dates. This page shows how to measure that space, size a loan to it, and pick the right way to borrow.
What is working capital, and why does it run short?
Working capital is the cash a business has available to pay its short-term costs. It runs short whenever the business pays out before it gets paid, which happens in almost every growing business.
Three things drain it:
- Stock and materials bought ahead of sales
- Customer terms, where you invoice and wait 14, 30 or 60 days
- Fixed dates for wages, rent and tax that do not move when receipts slip
Growth makes the squeeze worse. A business that doubles its sales usually has to buy twice the stock and carry twice the unpaid invoices before the extra cash arrives. This is why fast-growing, profitable firms are among the most common borrowers for working capital.
How do you work out how much working capital you need?
Multiply your daily outgoings by the number of days between paying out and getting paid, then add a modest buffer. That figure is the amount the business is short at its worst point.
The steps:
- Add up a typical month of costs: wages, rent, suppliers, loan repayments, insurance, utilities.
- Divide by 30 for a daily figure.
- Count the cash cycle in days: days stock sits, plus days customers take to pay, minus days your suppliers give you to pay.
- Multiply the daily figure by the days.
- Add a buffer for slow months, usually a tenth to a fifth.
| Cycle component | Days |
|---|---|
| Stock held before sale | 20 |
| Customers take to pay | 30 |
| Supplier credit you receive | 14 |
| Net cash gap | 36 |
If you find the gap is mostly customers paying late, invoice financing targets that directly and may cost less than a general loan.
Illustrative example: a trade wholesaler
Illustrative example: a wholesaler spends about $120,000 a month on wages, rent and suppliers, so $4,000 a day. Its net cash gap is 36 days. That is 36 times $4,000, or $144,000. Adding a 10 per cent buffer brings it to roughly $160,000.
Anything much below that and the wholesaler is guessing. Anything far above, say $400,000, means paying to carry money it does not need. If the next big contract will add $30,000 a month of costs, the calculation is simply run again with the new daily figure.
What are working capital loans used for?
Working capital loans pay for recurring operating needs, not for assets that last years. Common uses:
- Payroll when a large customer pays late
- Stock ahead of a seasonal peak
- Rent and utilities through a slow patch
- Supplier terms, including taking an early payment discount
- Tax instalments, because the ATO’s dates are fixed
On that last point, the ATO sets the due dates: quarterly BAS is due on 28 October, 28 February, 28 April and 28 July (some online quarterly lodgers get an extra two weeks, though not for the December quarter), and monthly BAS is due on the 21st of the following month. If a bill has already landed, loans to pay BAS, GST and PAYG debt covers the clean-up, and business loans for tax debt covers older balances.
What are the warning signs you need working capital?
You need working capital when profit and cash stop moving together. The signs show up in the bank account before they show up in the accounts.
- You are paying suppliers late, or asking for extra days, even in a good month
- Wages are covered by the last customer payment to land, not by a buffer
- You turn down larger orders because you cannot afford the stock
- You are pushing BAS or super to the last possible day
- Owners are putting personal money in to bridge the week
Any two of those, repeated over a few months, mean the cycle is out of balance. A loan helps if the cause is timing or growth. It does not help if the cause is a business that spends more than it earns, and a good lender will ask which one it is.
Which product matches which cash problem?
Pick the product by what is causing the gap, not by what is fastest to apply for. The table pairs common problems with the tool that usually fits.
| Cash problem | Usually fits | Why |
|---|---|---|
| Customers pay 30 to 60 days late | Invoice financing | Advances cash against the unpaid invoices |
| Gap repeats every few weeks | Business line of credit | Revolving, so you borrow only when short |
| One-off gap with a clear end date | Short term loan | Fixed amount, fixed exit |
| Sales mostly by card, uneven weeks | Merchant cash advance | Repayments follow card takings |
| Large amount, short record or credit marks | Property-secured loan | Security does the work the record cannot |
Matching the product to the cause is the single biggest saving you can make, because a mismatched facility either costs too much to keep or runs out when you need it.
Secured or unsecured working capital: which is better?
Unsecured is faster and simpler when the business can carry the amount on its own cash flow. Secured is better when you need more, have a short record or have credit marks.
| Unsecured | Property-secured | |
|---|---|---|
| What lenders assess | Turnover, bank statements, trading history | Equity in the property, a clear exit |
| Typical size | Commonly $5,000 to $500,000 | Commonly $20,000 to $5,000,000 |
| Business cash-flow records | Generally required | May not be needed for initial assessment |
| Credit problems | Harder | Can be considered |
| Speed | Often days | Some approved scenarios fund within 24 hours; many take a few business days |
The Reserve Bank’s October 2025 bulletin cites a survey in which about one in five small and medium businesses had difficulty getting finance, with strict lender requirements and long processing times among the reasons. That is the gap fast private funding was built for. Speed costs more than a bank loan does, so use it when the time saved is worth the difference. For the unsecured route, see unsecured business loans.
How do you repay working capital without trapping yourself?
Match the repayment to the day the cash returns, and do not roll one loan into the next. The danger of a working capital loan is not the first one. It is the habit of borrowing again to repay the last one.
Three checks before you sign:
- Does the repayment date fall after the receipts you are counting on?
- If a key customer pays a month late, can you still meet the repayment?
- Is there a defined exit, such as an invoice payment, a sale or a refinance?
If the same gap appears every quarter, a revolving limit may be cheaper than repeated loans. Compare it with a business line of credit. If the need is clearly short, a short term business loan with a fixed end date is cleaner.
What speeds up a working capital application?
Complete, recent statements and a clear purpose speed it up most. Delays usually come from missing months of statements, unexplained transfers and unclear repayment plans.
Have ready:
- The last three to six months of business bank statements
- Your ABN, trading start date and a turnover estimate
- A list of existing loans and repayments
- One sentence on what the money is for and where repayment comes from
The full checklist is in our guide to documents needed for a business loan. To see where your situation sits among the options, see what you could qualify for with one short application.
Start with one application
Whichever route suits, the first step is the same: tell us the gap and the date it closes. The quick application takes minutes, and we help match you with an unsecured loan, a property-secured option, or a better-fitting product if your numbers point there. Apply now or call 03 4059 1829.