Working capital loans explained

Funding to keep your business operations rolling

A working capital loan is a short-term loan that is taken out to facilitate the day-to-day running of everyday operations. This is to ensure the daily operational needs of a company are met. It comes under the umbrella of working capital finance.

A working capital loan can be taken out to meet costs such as rent, staff and payroll and debt repayments and other corporate debts associated with running a business. Critically, it is not used to buy long term assets or fund long term growth.

Why choose a working capital loan?

What are the benefits of a working capital loan?

Working capital loans vs. business loans

Is it good for SMEs?

How much can I borrow?

Is my business eligible?

What types of working capital loans are available?

Why choose a working capital loan?

There are three main reasons why you might consider taking out a working capital loan:

  • You are facing problems meeting your daily operational expenses including paying suppliers, rent, payroll and creditors out of cash flow
  • You want to invest in your business or take on a new contract / business deal
  • You want to set yourself up a cash backup to tackle unforeseen events such as sudden expenses or a sudden roll out of new products

Businesses who face seasonal sale cycles or who want to increase their liquidity may benefit from a working capital loan. The working capital loan can be used to meet changing requirements in operational costs and help off-set periods of low activity / sales. Alternatively, businesses can also use working capital to finance peak sales period. For example, businesses in the hospitality sector can benefit from taking out a working capital loan to meet the needs of increased staff and inventory costs during peak periods.
Working capital is essential to the daily operation of your business, as it allows you to meet your financial responsibilities with your current assets and continue to grow your business without taking on debt.

What are the benefits of a working capital loan?

  • More liquidity means more flexibility – you can realize your business goals without having to give equity
  • Invest in new products – meet the opportunity cost of realizing goals
  • A financial cushion for your company – stretch your money further
  • Late payment to suppliers could impact severely on your business outlook

Working capital loans vs. business loans

Working capital loans are short-term with shorter repayment period with options of renewing as a revolving facility. Term loans, on the other hand, can be short, medium, or long term. Their duration is usually between one to ten years, but some term loans could extend up to 30 years. Working capital loans are intended to meet short business operation requirements whilst business loans are intended to fund business expansion and capital assets

Working capital loans are usually smaller loan amounts but can have higher interest rates compared to business loans. Working capital loans also have a quicker turnaround than business loans which may require in-depth paper work and procedural compliance.

Is it good for SMEs?

To boost available capital, SMEs can benefit from working capital finance. It can help bridge the gap or finance the difference between customer orders and supplier payments. By utilizing a loan for working capital, you release cash for business expansion without using other forms of financing to raise capital. 

If your business does not show a healthy working capital, there are many business finance schemes offered which can help improve its liquidity. For example, a  merchant cash advance allows you to lend a cash sum against future card transactions, while you can organize a trade finance loan to order inventory or stock from a supplier, limiting the possibility of delays to shipping orders.

How much can I borrow?

Swoop works with lenders who offer loans from as little as $5,000 all the way up to $10,000,000. The amount you can borrow will depend on the strength of your business, the type of working capital loan you are looking for, what is being purchased or offered as security, and the value of the assets. Contact us to find out how much your business can borrow and what type of working capital loans is best for your current and future needs.

Is my business eligible?

When applying for a working capital loan, you might have to fulfil some criteria to assess whether your business qualifies for the loan or not. Here are some criteria to keep in mind while determining whether or not your business is eligible:

  • be a registered business in Australia
  • meet the turnover requirements set by the lender
  • meet the minimum operating terms set by the lender, and
  • be able to make your repayments under the terms you have agreed.

As long as you can meet these requirements, finding a working capital loan that suits the needs of your business becomes a lot easier.

What types of working capital loans are available?

Swoop can assist you with other types of working capital financing as well.

Trade finance

Supplier finance

Business overdraft

Business credit card

R&D tax credit loans

Merchant cash advance

Revolving line of credit

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