Working capital loans: money for the days between spending and getting paid

A bakery can sell out by ten in the morning and still run short of cash by Friday. The flour bill, the wages and the rent land on fixed dates, while the money from wholesale customers arrives on theirs. That space between money out and money in is what working capital exists to cover.

What is working capital, in plain English?

Working capital is the money you need on hand to keep trading. It pays for the everyday things: wages, rent, utilities, supplier invoices, insurance and the stock that turns into tomorrow’s sales. Accountants calculate it as current assets less current liabilities, but owners feel it as a simple question: will there be enough in the account on the day the bills go out?

Business.gov.au describes cash flow as the flow of money through a business so there is always enough to cover expenses, debts and the owner’s needs. When that flow stalls, even profitable businesses wobble.

Why does a profitable business run short of cash?

Profit and cash are not the same thing. A few common reasons the account runs dry while the books look fine:

• Customers pay in 30, 45 or 60 days, but your suppliers want payment sooner.
• Stock is bought ahead. The money has left your account before a single sale is made.
• Tax lands in lumps. GST, PAYG and super come due on set dates whether or not the cash has caught up.
• Growth eats cash. Taking on a bigger order or an extra person costs money before it earns any.

If you want to see how big the gap is for your own numbers, the Dough gap calculator uses your monthly costs and your typical days-to-get-paid to estimate it.

When does a working capital loan make sense?

A loan fits when the gap is real, you can see where it ends, and the business can carry the repayments. Typical cases include:

1. Bridging a slow-paying customer. A reliable client is 45 days out and wages are next week.
2. Stocking up. A busy season is coming and suppliers need paying now.
3. Taking on a larger order. The order is signed and the materials must be bought first.
4. A quiet patch. Revenue dips for a month or two and fixed costs do not.
5. A tax bill. Putting a BAS or PAYG payment on the account without starving the till.

It tends not to fit if the business is losing money structurally. A loan then only delays the problem, and an honest conversation with an accountant comes first. Business.gov.au suggests testing changes with forecasts and talking to an adviser before acting.

How much working capital might I need?

Here is the arithmetic, shown with an illustrative example that uses no real business. Suppose a café has fixed costs of $24,000 a month and its wholesale customers pay in about 30 days. Paying 30 days of costs before the cash arrives means roughly $24,000 is tied up at any moment. If the owner also wants to buy a $15,000 oven upgrade and holds $10,000 in the bank, the gap is about $29,000.

That is the number a working capital loan would be built around. The calculator does the same sum and also shows how many weeks of runway your cash buffer gives you.

For trading businesses without property, typical unsecured amounts run from $5,000 to $500,000, sized on turnover and bank statements. Where the gap is larger than turnover can support, property-backed options may close it.

What will lenders look at?

Lenders read the story your bank statements tell:

• steady or growing deposits;
• regular outgoings paid on time;
• limited days overdrawn;
• how long you have been trading;
• a believable reason for the money.

Our guide on what lenders see in your bank statements shows how to tidy up the picture. If your statements are lumpy for a good reason (a seasonal trade, say), say so on the form. A line explaining a spike or a dip does more good than a hundred pages of detail.

What should I compare before saying yes?

• The total cost of finance in dollars across the full term, plus any fees.
• How repayments are structured and what that does to weekly cash.
• What happens if you repay early.
• Whether a line of credit would suit better if the gap keeps coming back (see the business line of credit).

Do not chase a figure on a poster; a facility priced on your circumstances is the only price that matters.

Can I shrink the gap before I borrow?

Often, yes, and it is worth trying because every dollar you free up is a dollar you do not have to borrow. Business.gov.au suggests several practical levers:

• Invoice sooner and automate it. Faster invoices mean faster payment, and deposits or early-payment discounts can pull cash forward.
• Follow up overdue amounts promptly. A polite reminder on day one of lateness is easier than a hard chase on day sixty.
• Negotiate supplier terms. Longer terms on your side of the ledger mean you pay later.
• Buy stock closer to the sale. Overstocking ties up cash on a shelf.
• Review costs. Compare energy, insurance and banking deals, and cut spending that does not earn its keep.

None of these replaces a loan when you have a genuine, time-sensitive gap. But a business that has tightened its terms and still has a gap makes a clearer case to a lender than one that has not looked. For a deeper look at the mechanics, read the guide on the working-capital gap.

What next?

If your numbers show a gap and the cause is timing rather than a broken business, tell us about it. Enquire now and a lending specialist will read your situation and ring you. The first enquiry carries no credit check, and your details are not shared with a pile of lenders.

Let’s get you rising again

Fill in the form with your real monthly figures, the real purpose and the date you need the money by. Accurate answers mean the first call can go straight to the right option, with no back-and-forth. See what’s possible for your business.