Intro to working capital finance

Working capital finance provides businesses with funds to cover short-term needs, overcome cash flow constraints or take advantage of opportunities to grow the business that include but aren’t limited to:

  • Managing cash flow
  • Paying suppliers
  • Wages
  • Discounted stock/inventory
  • Pay for larger orders to win a contract

Working capital loans don’t usually require you to offer your property (or other assets) as security.  While a big advantage, this will usually see the terms offered being over 2 to 3 years.  This shorter timeframe is to compensate the lender for the higher risk of an unsecured facility.

Compared to asset or equipment finance, working capital finance will tend to be at higher rates.   But due to the shorter terms you may end up with a total interest expense that is the same, or even less than loans that have longer terms but a lower rate.  It is especially useful for businesses that have cyclical or variable cash flows or those looking to take advantage of short-term opportunities when they arise.

For example, it is possible to use working capital to essentially be used in the same way as an overdraft.  This provides flexibility to take advantage of short-term deals on stock or assets.

Approval criteria: what do lenders want?

  • Lenders will be primarily concerned with the strength of the business bank statements including revenue and account conduct.  You can expect a working capital amount roughly equivalent to your average monthly turnover.
  • The lender will assess and prioritise your income and deposits over evidence of future earnings (such as signed contracts) when assessing your ability to service. That is, actual revenue is generally seen as more important that potential revenue.
  • Security offered won’t be as important and some small credit impairment may be acceptable (particularly if any impairment were non-financial or credit-related in nature).

Lender deal-breakers

Here is a list of some potential deal breakers when considering if a working capital loan is right for you.

  • Average monthly revenue over the last year as showing on bank statements usually needs to be greater than $6K/month.
  • At least six months of revenue reflected on bank statements (with 1welve months preferred).
  • Unpaid defaults or even paid defaults above $20K may be enough to spell trouble.
  • Any dishonours within the business account need to be less than 15 percent of monthly direct debits (not revenue).
  • Gambling transactions on the business account need to be under 10 percent of the business revenue (including pub ATM withdrawals) .
  • If wanting to refinance or extend additional funds from any existing debt, your conduct will need to be very clean with minimal impairment such as dishonours.
  • Cannot have current unsecured debt that is greater than your monthly turnover.
  • Payment plans should be in place for current ATO debt that is more than twice the monthly turnover (or any ATO debt additional to BAS debt).


Working capital finance can be a great solution, particularly for businesses that have a great reliance on inventory and stock.  Slow-moving stock can negatively impact the cash flow of your business, particularly when you need to meet the day-to-day needs of your business.  It is intended as a short term injection of cash flow to meet those daily expenses or to take advantage of short-term opportunities.

Prudent use of working capital can help your business to remain financially healthy and support continued growth.