Working-capital finance is funding used to support the short-term operating requirements and cash-flow cycle of a business. It may be used for inventory, supplier payments, wages, rent, tax obligations, seasonal expenditure or the timing gap between paying costs and collecting customer receipts. Depending on the need, the facility might be structured as a term loan, overdraft, line of credit, invoice finance or another form of business funding. It is important to distinguish a temporary or recurring timing requirement from persistent operating losses, because additional debt does not correct an unsustainable business model.Read our Australian guide to working-capital finance.

A business term loan generally provides a set amount that is repaid over an agreed period, which may suit a defined or one-off requirement. An overdraft is usually linked to a transaction account and allows the balance to move below zero up to an approved limit. A line of credit generally provides a reusable limit that can be drawn, repaid and redrawn, subject to its terms. Interest, fees, security, review requirements and repayment arrangements vary. The appropriate structure depends on whether the cash-flow need is one-off, recurring or fluctuating.Compare a business loan, overdraft and line of credit.

Requirements depend on the lender and facility, but common documents include recent business bank statements, financial statements, management accounts, BAS, tax returns, accounts-receivable and accounts-payable ageing reports, existing debt details and a cash-flow forecast. The lender may also request information about the funding purpose, major customers and suppliers, seasonality, tax position, business structure and the owners' financial position. Invoice or trade facilities may require additional transaction-level information. Accurate, current records help the lender understand the amount required, the underlying cash-flow cycle and how the facility is expected to be repaid.Read what lenders may request for a working-capital finance application.

Invoice finance allows an eligible business to obtain funding against approved unpaid invoices issued to business customers. The provider advances part of the invoice value and releases the balance, less fees and other amounts, when the customer pays. Eligibility can depend on debtor quality, invoice validity, customer concentration, payment terms and the business's trading history. Facilities may operate with or without customer notification and may be recourse or non-recourse, subject to the provider's terms. Businesses should examine fees, exclusions, reporting requirements and what happens if an invoice is disputed or remains unpaid.Read our guide to invoice finance in Australia.

Yes, finance may help a viable business pay for stock, labour, marketing or other costs before seasonal sales are collected. The facility should be assessed against the full seasonal cycle, including when funds are drawn, when customer receipts are expected and how repayments will be managed during quieter periods. Lenders may review previous seasonal trading, current orders, margins, stock levels, forecasts and available cash reserves. Funding should be arranged with sufficient lead time because waiting until cash is exhausted can reduce the options available and place pressure on the assessment.Read how businesses can plan finance around seasonal cash flow.

Lenders generally consider whether the business can meet the proposed repayments from sustainable cash flow after paying its normal operating costs and existing commitments. They may review historical financial statements, current management accounts, bank-account conduct, margins, working-capital movements, seasonality, customer concentration, tax obligations and existing debts. Forecasts may also be tested against lower revenue, slower collections or higher costs. Accounting profit is not always the same as available cash, so the assessment may examine how inventory, receivables, supplier terms, capital expenditure and owner drawings affect liquidity.Read how to prepare a 13-week cash-flow forecast.Australian Government guidance: preparing to apply for a business loan.

The interest rate is only one part of the cost of business finance. Depending on the facility, costs may include establishment, documentation, valuation, legal, annual review, line, unused-limit, drawdown, early-repayment, direct-debit or monitoring fees. Repayment frequency and loan term can also materially affect cash flow and the total amount paid. Some facilities price risk through a fixed fee rather than a conventional annual interest rate. Businesses should compare the total dollar cost, amount actually received, repayment schedule, security and facility conditions, rather than comparing headline rates alone.Read how to compare working-capital finance costs beyond the interest rate.

Borrowing may not solve a cash-flow problem when the business is persistently unprofitable, margins are inadequate, costs are structurally too high or debts already exceed the business's realistic repayment capacity. Finance can assist with a temporary timing gap or a properly planned working-capital cycle, but it also creates interest, fees and repayment obligations. Before borrowing, the underlying cause should be identified. That may require reviewing pricing, collections, inventory, expenses, tax obligations and the operating model with an accountant or turnaround adviser. Additional debt should not be used merely to postpone an unresolved problem.Read when borrowing may not solve a business cash-flow problem.Australian Government guidance: warning signs of business financial trouble.