Working Capital Loan

With a working capital loan, you can get fast funding for your everyday business operations. Even if your business isn't making enough to cover operational expenses, you're still covered. This can be useful if your business experiences reduced activity or sales during certain times of the year.

What is working capital finance and how does it work?

A working capital loan can provide funding to cover operational costs, helping you run your daily business activities. You can use the funds to cover cash flow gaps, pay bills and staff, purchase inventory or pay for marketing expenses. This type of finance is useful if your business has seasonal sales.

Loan terms are also short, ranging from a few months to 2 years. Repayments terms are also flexible, allowing you to tailor it to the ebbs and flows of your cash flow. These loans are also easy to apply for, with most applications online. They also feature fast turnaround times, and you could receive funding within 1 business day.

How much you can borrow will depend on the lender and your ability to repay the loan.

What are the pros and cons of working capital finance?

Pros.

• Quick and easy funding. These loans generally have easy applications and fast turnaround times. This means that you don't have to wait to get finance.
• Unsecured options available. You can choose an unsecured option and not put up business or personal assets.
• Match repayments with cash flow. This takes off the pressure of repayments when business is low.

Cons.

• Can be more expensive. The interest rate may be higher than for a standard business loan. The loan can also be risk-based, so interest rates will depend on your credit score. The better your score, the lower the rate and vice versa.
• Short terms. Loan terms are generally short, so it may help you in the short run. But if you need finance again, you'll have to reapply or find a longer term solution. Additionally, if you borrow a large amount, short terms means large monthly repayments.

What should I consider before I apply?

Here are a few things you need to consider before you apply:

• How much does the loan cost? As useful as the loan is, you also have to pay it back. Take into account the interest rate and also loan term. WIll you be able to pay back the loan and most importantly, can your business afford it?
• How much do I need to borrow? Consider how much you need to borrow and borrow only what your business needs. You'll have to pay it back with interest, after all, and you may end up borrowing more than what you can afford.
• Is it secured or unsecured? The loan can be either secured with an asset or unsecured. You could put up an asset and borrow more, or go for an unsecured option. Unsecured loans generally come with lower borrowing amounts.
• Are repayments flexible? Make sure you check if the lender offers flexible repayment terms. This can help you manage repayments during the ebbs and flows of your business cashflow.
• How does it compare against other options? There are other ways to get finance, including business overdrafts or invoice financing. Consider other options and look into how it compares. Are there cheaper, more flexible options?
• How long do you need funding for? If you only need funding for a short period, this loan can be useful. But if you need long term funding, this loan is unsuitable.

Is my business eligible for a working capital loan?

The eligibility criteria will differ based on the lender. In general, you'll need to meet the following criteria:

• Minimum income. You'll need to meet the lender's minimum income requirement to qualify. This can be a certain amount of monthly sales.
• Age of business. Your business may need to be in operation for a certain amount of time. Some lenders may require your business to be in business for over 6 months, but it can range up to a year.
• Active ABN or ACN. You'll need an active Australian Business or Company Number to apply.
• GST registration. Your business also may need to be registered for GST.

Apart from this, as for all loans, your business will have to demonstrate it can repay the loan.

How can I apply for a working capital loan?

🤔 Work out how much you need to borrow and what you can afford. You can use a personal loan calculator to help you.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use the comparison table on this page.
✅ Select a lender. Click "Go to Site" to be directed to the lender's page, or "More Info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.

Frequently Asked Questions

• How much can I borrow?

  This varies from lender to lender, but you may be able to borrow up to $250,000 or more. How much you can borrow will depend on your business (financials and credit score included) and the value of the security offered.

• How is interest charged?

  Interest can be charged 1 of 2 ways. The first is the standard method, where you receive a rate when you take out a loan. That rate is applied to the amount you borrow. Alternatively, you could also receive a risk-based interest rate. This is when you receive a rate based on the risk the lender is taking by loaning money to you. Generally, if you have good business finances and a good credit score, you'll be considered low risk, and vice versa.

• What are the alternatives to working capital loans?

  Depending on the amount of finance you need, you could apply for a business overdraft or line of credit. You could also opt for invoice financing or apply for a business credit card.

Written by

Alex Jeffs

Publisher

Alex Jeffs is the senior publisher for automotive content at Finder. He has tested vehicles everywhere from Tasmania to Oodnadatta. See full bio

Alex's expertise

Alex has written 52 Finder guides across topics including:

• Automotive industry
• Car finance
• Car insurance
• Personal finance