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What is a working capital loan?

A working capital loan is a short-term loan designed to finance the day-to-day operations of a business. A business may need a working capital loan to cover expenses such as wages, paying invoices and paying for marketing costs.

Sometimes the term 'working capital loan' is used to describe a general business loan where the funds are borrowed against future cash flow. However, it's more generally used in reference to loans to finance business operating costs that would be otherwise be funded by the business's current assets.

How do working capital loans work?

Working capital loans work differently depending on the lender, but generally, they work just like a short-term business loan. You’ll agree to borrow a specific amount which will be repaid over an agreed term – usually up to 12 months.

Depending on the type of business you operate, your credit profile, and the lender you apply with, you can generally borrow anywhere between $5,000 and $1 million (or sometimes more).

A working capital loan can be secured by an asset the business owns, but is usually an unsecured business loan where eligibility is assessed based on your capacity to generate ongoing revenue to repay the loan.

Who uses working capical loans?

Working capital loans are consistently popular with small-business owners, which is no surprise considering the vast majority of businesses in Australia fit into the SME category.

In fact, recent business lending data shows accessing funds to provide working capital is by far the most common reason small businesses apply for a loan.

The reason they’re so popular is simple; although the types of SMEs in Australia vary considerably, most have the same issue: access to working capital.

This is where working capital loans and other business finance can be invaluable. Now let’s look at some of your options if you’re looking for an injection of cash flow.

Types of working capital loans

Working capital finance is a very broad category and there are several products a business can use to access working capital. They can be grouped together into main categories:


Term loan

Essentially this is a one-off loan with a fixed term and borrowing amount. It can either be a loan to cover a range of general costs, or it may be for a single specific cost, such as fitting out an office or purchasing inventory. These kinds of business loans can be secured or unsecured.

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Revolving line of credit

Some businesses prefer to have an ongoing source of finance to cover expenses as they crop up, without a more flexible credit limit and the need to reapply for finance again and again. A business line of credit and a business overdraft are the most popular options, but a product like invoice finance can also provide a regular supply of funds, depending on how the business operates. A business credit card is another option here.

Here's a further breakdown of these options:

A business loan that doesn’t require any security and can be used for any purpose. They can be ideal for short-term finance needs. Approval on an unsecured business loan can be fast, but they usually have higher interest rates than secured finance.

Similar to an unsecured loan but with better rates and options. Commonly used for larger loans or for longer-term finance.

An amount of money you can access as you choose to, made available by a lender for a set period of time. Provides great flexibility in how and when the money is used. It can help keep costs low as interest is only charged on the amount drawn down.

Similar to a line of credit, an overdraft is instead a backstop form of finance that allows you to access funds by being able to withdraw more than what is in your business bank account.

A unique form of finance where you sell your outstanding invoices to a third-party financier, who will pay out a percentage of the invoice value upfront, and the remainder (minus a fee) once they have collected the payment from the other business.

Allows you to access credit to make payments for any business purpose, up to a limit. Credit card interest rates tend to be high, but some come with certain perks, like reward points and airport lounge access.

How to apply for a working capital loan?

Working capital loans are designed to provide fast access to cash when it’s needed, particularly by SMEs and when there may not be sufficient documentation to apply with your bank.

The minimum requirements in Australia are:

  • An ABN
  • A GST-registered business
  • Citizen or permanent resident
  • A minimum business-operating time of six months
  • Business bank statements

You can apply for a small business loan with banks or non-bank lenders.

Non-bank lenders will generally offer the fastest approval and most flexible lending arrangements. Banks tend to have stricter lending criteria.

The most important part of the process will be demonstrating your capacity - i.e. your ability to repay the loan over the term to the lender.

Final options for accessing working capital

If you can access and qualify for any of the loans above, you’ll often be able to compare a number of competitive, personalised options.

However, if you’re not able to qualify for any of the working capital loans above, there is still one other option you might consider: caveat loans.

Caveat loans are often the last resort for business owners, and will generally only be suitable if the business owner:


Does not qualify for other types of business finance

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Is operating a start-up or new business (less than two years)


Is comfortable using the available equity in their property


Can comfortably meet repayments on the loan

The terms and interest rates for business caveat loans will vary between lenders - as you are using the equity in your property as security, it’s crucial that you understand the total cost of repayments and are able to service the loan over the term.

Compare the best business loan options

The type of finance that will suit best depends on your business, what it needs funds for and how soon.

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FAQS about working capital loans

This will depend on the business and its capacity to repay the loan based on revenue. Loans up to $1million is a common cut-off among lenders, but higher amounts are possible for larger businesses with high revenue and a strong credit history.

Some of the advantages of working capital loans include:

  • Fast access to funds to keep the business operating smoothly
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  • Repayments can be flexible to match business cash flow
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  • There are several options available to suit different needs (i.e. term loans and lines of credit)

Disadvantages of working capital loans can include:

  • High interest rates as it is a short-term form of finance
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  • For small, newer businesses seeking finance, the business owner may need to put up personal assets to secure the loan

With some lenders it's possible to be approved for a working capital loan and have the funds in the same business day, or within 24 hours. However, the timeframe for approval and funding varies between lenders and how complicated your application is.

Shaun McGowan Money.com.au founder

Written by

Shaun McGowan

Shaun McGowan is the founder of Money.com.au. He's determined to help people and businesses pay as little as possible for financial products, through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

Sean Callery Editor Money.com.au

Reviewed by

Sean Callery

Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.


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