Working Capital Loans

What is a working capital loan?

A business can measure its working capital by looking at its current assets compared to its liabilities. If you have greater assets than liabilities, then that sum is your current working capital. It’s the cash your business has on hand to deal with the day-to-day running of your business.

Working capital could help deal with a situations which might suddenly arise and and involve extra expenses. A working capital loan might help you meet those day-to-day costs.

Why might I consider a working capital loan?

A working capital loan is to help you meet the day-to-day running costs of your business. It’s not a loan for investment or to further the growth of your business, it’s simply to keep your business running smoothly.

It is helpful for things like:

• Dealing with seasonal business fluctuations during quieter times.
• Hiring extra staff at short notice to meet a short-term need.
• Pay off outstanding accounts.
• Repair equipment.
• Buy additional stock ready for a busy period.
• Meeting unexpected expenses.

How much can I borrow?

How much you can borrow with a working capital loan depends on your business circumstances. Most lenders will assess your businesses profitability, reliability, and future prospects before deciding how much they will lend you.

Do I need security?

Yes and no. It can depend on the loan product and lender you decide to go with.

There are pros and cons to both secured and unsecured loans.

Benefits of secured loans

With a secured business loan, the lender has the security of your asset to back up the money loaned. This means they are taking on less risk and can therefore offer benefits which include things like:

• Lower interest rates.
• Larger loan amounts.
• Longer loan periods.

Cons of secured loans:

• Your asset is at risk if you default. If you lose a business asset it could affect your ability to operate.
• Application process is more involved. Your asset will have to be valued to be accepted as security.

Benefits of unsecured loans:

• Often processed and funded quicker.
• No asset is at risk.
• Spend the funds as you wish.

Cons of unsecured loans:

Because the lender doesn’t have the security of your asset or collateral, there are a few slight downsides to unsecured loans.

• Higher interest rates.
• Smaller loan amounts.
• Shorter term loans.
• Personal guarantee.

What else should I consider about working capital loans?

One of the main things to consider is how quickly you may need to access these funds.

Some small businesses may find speed of funding a vital benefit. They might need fast, short-term loans to bridge any financial gaps which appear in their business plan.

If speed is an important factor, then it may be worth considering an unsecured loan. Perhaps the slightly higher costs involved will be offset by the value of having an efficiently running business, capable of meeting short term demands and taking advantage of opportunities.

Is my business eligible?

If you are an established, profitable business, trading for over 3 months, with a positive outlook and a good credit rating, you stand a good chance of being eligible.

Some of the main reasons that working capital loans are declined include:

• Poor credit score.
• Bad credit history.
• Low business revenue.
• Highly seasonal business.
• New business.

How can I find working capital loans?

At iSelect we’ve partnered with Valiant to make it easier for iSelect customers to find a small business loan product that suits their business needs. Valiant compare a range of products from over 80 lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

Last updated: 10/05/2022