You’ve done the numbers.
The business is profitable.
Customers are paying.
The debtor ledger is reasonably healthy.
But there’s a recurring gap between paying for the work and receiving the money.
So you need working capital.
The next question is usually:
“What’s the best business loan?”
I would ask a different question.
What is the money actually doing?
Because a debtor-finance facility, overdraft, revolving facility and term loan can all put money into a business.
But they don’t work the same way.
And the cheapest-looking option isn’t necessarily the most appropriate structure.
For an Appin construction, transport, trades, civil or growing commercial business, matching the facility to the cashflow problem can be just as important as the amount borrowed.
Start With the Problem
Don’t start with the lender.
Don’t start with the interest rate.
Don’t start with:
“The bank offered us $200,000.”
Start here:
Why does the business need money?
Perhaps:
customers pay in 45 days
wages are paid weekly
a new contract requires mobilisation
stock must be purchased before sale
the business is growing rapidly
a large debtor ledger is tying up cash
seasonal expenses occur before revenue
several major invoices are outstanding
a one-off expense has occurred
Those aren’t all the same problem.
So they don’t automatically need the same finance.
Is the Requirement Recurring?
This is one of the first things I’d want to understand.
Imagine an Appin civil contractor.
Every month the business pays:
wages,
fuel,
materials,
subcontractors,
equipment repayments.
Customers pay later.
As soon as one invoice is paid, another invoice has been raised.
The cashflow gap never completely disappears.
That’s a recurring working-capital requirement.
Compare that with:
“We need $120,000 once to relocate the business.”
Very different.
A Term Loan Gives You a Lump Sum
A business term loan generally provides an agreed amount upfront, which is then repaid over an agreed period according to the facility terms.
That can make sense for certain identifiable expenditures.
For example:
a fit-out,
business acquisition,
one-off project cost,
refinancing,
or another defined requirement.
But think carefully before using a fixed term loan to solve a cashflow gap that continually renews.
The $200,000 Term Loan Problem
Imagine the business is permanently around $150,000 behind its customer payment cycle.
It borrows $200,000.
Great.
The bank account looks healthy again.
But the business now has an additional loan repayment.
Six months later, the $200,000 has been absorbed into:
wages,
suppliers,
fuel,
and operations.
Customers are still paying 45 days after invoicing.
The original cashflow cycle hasn’t changed.
The business may once again be short of cash.
Now it also has another term-loan repayment.
That’s why we need to identify whether the requirement is temporary or structural.
What Does an Overdraft Do?
An overdraft can provide access to funds up to an approved limit through the business banking structure, subject to the particular lender and facility.
The business can potentially draw into the facility when cash is required and reduce the balance when customer receipts arrive.
For businesses with fluctuating working-capital requirements, that can be useful.
But overdrafts vary in:
security requirements
limits
pricing
review requirements
covenants
fees
Don’t assume an overdraft is automatically available or automatically the cheapest option.
Why an Overdraft Can Make Sense
Imagine the business has a predictable monthly cycle.
Payroll falls on Tuesday.
Large customers pay on Friday.
For a few days each month, the account needs an additional $80,000.
Then customer receipts bring the balance back.
A revolving working-capital structure can make more sense than borrowing $80,000 for five years and making principal repayments every month.
The money is solving a short-duration recurring gap.
But What if the Overdraft Never Comes Back Down?
This is worth watching.
The business receives a $200,000 overdraft.
Initially the balance fluctuates.
Then it sits at:
$150,000.
Then $180,000.
Then $195,000.
Eventually the business is permanently at the limit.
That’s telling you something.
The overdraft may no longer be covering a temporary cash cycle.
It may have become permanent debt.
Ask why.
What Is a Revolving Business Facility?
There are business-finance facilities that provide an approved limit from which funds may be accessed and repaid according to the product structure.
The terminology differs between lenders.
You might hear:
revolving facility,
line of credit,
business credit facility,
working-capital facility.
The important thing isn’t the label.
Understand how the facility works.
Ask These Questions
Before choosing a revolving facility, understand:
How much is the limit?
How do I access funds?
What repayments are required?
Can repaid amounts be redrawn?
What interest applies?
What fees apply?
Is the facility secured?
How long does it remain available?
Is it reviewed?
What happens if the business doesn’t use it?
Two products described as a “business line of credit” can operate very differently.
What About Debtor Finance?
Debtor or invoice finance takes a different approach.
Instead of providing a facility based solely on a fixed amount, funding can potentially be linked to eligible commercial receivables, subject to the lender’s structure, facility limit and eligibility criteria.
The business raises eligible invoices.
A proportion of those receivables may potentially contribute to available funding.
Customers eventually pay.
The facility adjusts according to its structure.
For a business where the main asset consuming cash is the debtor ledger, that connection can be useful.
Why Growing Businesses May Look at Debtor Finance
Let’s return to Alstonville.
Sales were increasing.
The debtor ledger was increasing with them.
If eligible receivables grow as the business grows, a debtor-finance structure may potentially provide funding that responds to that expanding ledger, within approved parameters.
Compare that with a fixed $200,000 loan.
The loan stays $200,000.
The debtor ledger might grow from $500,000 to $1 million.
Different structures behave differently as the business changes.
But Debtor Finance Isn’t Automatically Better
Absolutely not.
There can be:
fees,
operating requirements,
customer concentration considerations,
invoice eligibility rules,
minimum commitments,
reporting requirements,
and other facility conditions.
For some businesses, an overdraft or revolving facility may be simpler.
For others, debtor finance may be highly relevant.
For another business, a term loan may solve the problem perfectly.
We need the facts.
How Large Is the Debtor Ledger?
Suppose an Appin contractor has:
$900,000 in commercial receivables.
Customers generally pay in 45 days.
The business needs around $300,000 of additional working capital.
That’s a very different discussion from a small business with:
$40,000 in receivables
that occasionally needs another $15,000.
Scale matters.
Who Are the Customers?
As we discussed in Albury, concentration matters.
If one customer represents 80% of the debtor ledger, some debtor-finance lenders may assess the facility differently.
If the ledger is spread across 100 established commercial customers, that’s another profile.
Don’t choose debtor finance simply because the business issues invoices.
We need to understand the invoices.
How Predictable Is the Gap?
Some businesses have extremely predictable cash cycles.
Others don’t.
A transport company might know roughly what it invoices every week and when customers pay.
A project contractor may have much lumpier receipts.
A wholesaler might have seasonal peaks.
A construction business may depend on progress claims.
The facility needs to work when the business actually needs it.
What About Seasonal Businesses?
Imagine the business needs $500,000 for four months each year but only $100,000 for the rest.
Taking a large fixed loan may leave the company paying for capital it doesn’t need year-round.
A flexible working-capital structure may be worth investigating.
But again, look at:
availability,
fees,
limits,
repayments,
and lender criteria.
Flexibility has value, but it can also have a cost.
What if the Need Is Only Temporary?
Suppose a customer unexpectedly delays a $180,000 payment.
The business has never had a working-capital issue before.
The invoice will be paid shortly.
That’s different from a permanent debtor cycle.
A short-term solution may potentially be more appropriate than restructuring the entire working-capital model.
Understand whether you’re solving an exception or the normal way the business operates.
What if You’re Funding a New Contract?
This is another situation.
The business wins a major contract.
It needs $250,000 to fund the first six weeks.
After customer payments begin, the contract becomes largely self-funding.
Perhaps.
Model it.
Don’t assume the requirement disappears.
If the customer continually pays six weeks behind while the business continually performs new work, there may still be a permanent funding gap.
What if You Need a Truck as Well?
Now separate the problems.
The business needs:
$200,000 working capital
and
a $300,000 truck.
That’s not automatically a $500,000 business loan.
The truck may potentially be financed through asset finance.
The working capital may be addressed through a different facility.
This can preserve cash and match finance to the assets or requirements being funded.
What if You Need Five Trucks?
Tell us before buying Truck 1.
A growing transport company might have a capital expenditure plan covering:
prime movers
trailers
rigid trucks
utes
forklifts
workshop equipment
Depending on lender policy and borrower strength, some lenders may consider multiple assets in one transaction or broader asset-finance/master facility arrangements.
Other lenders may prefer separate approvals.
Knowing the whole plan matters.
Don’t Drain the Overdraft for Equipment
This can happen.
The business has a $250,000 overdraft.
Then it needs a machine.
The owner uses $120,000 from the overdraft as the equipment contribution.
Now half the working-capital facility has disappeared.
Payroll hasn’t changed.
Customer terms haven’t changed.
The business has unintentionally converted working capital into long-term asset funding.
Think carefully about the purpose of each facility.
What About Property-Secured Business Finance?
Depending on the circumstances, property-backed business finance may also be considered.
It can potentially provide different limits, pricing or terms.
But don’t jump straight to property simply because equity exists.
If the business has a $600,000 debtor ledger and a recurring receivables-driven cashflow gap, there may be other structures worth investigating.
Security is part of the decision.
Not the entire decision.
The Cheapest Rate Can Be the Wrong Comparison
Imagine Facility A has a lower interest rate.
But it only provides $150,000.
The business genuinely needs $300,000.
Facility B costs more but provides the liquidity required to fulfil a profitable contract.
Which one is actually cheaper for the business?
That’s not an argument for expensive finance.
It’s an argument for comparing the commercial outcome, not only the rate.
Compare Total Cost
Look beyond interest.
Depending on the product, there may be:
establishment fees
line fees
monthly fees
unused-limit fees
transaction fees
debtor-finance service fees
legal costs
valuation costs
early repayment costs
Ask for the complete structure.
A low advertised rate doesn’t necessarily mean the lowest total cost.
Then Compare Flexibility
Can the facility grow?
Can it reduce?
Can you repay early?
Can funds be redrawn?
Is there a fixed term?
Is security required?
What reporting is needed?
Can you add another entity?
What happens when the business grows?
Finance isn’t only about today’s problem.
Consider tomorrow’s business too.
Don’t Stack Facilities Without Looking at the Whole Position
This is another trap.
The business has:
an overdraft,
two short-term business loans,
three credit cards,
equipment finance,
a fuel card,
and ATO debt.
Then it adds another facility.
Each decision might have made sense individually.
Together, the repayment burden becomes difficult to manage.
Before adding debt, list everything.
Consolidation Isn’t Automatically the Answer Either
One larger loan can look attractive.
But don’t automatically refinance:
truck finance,
working capital,
credit cards,
and other debts
into one long facility simply because the monthly repayment falls.
Look at:
total interest,
remaining terms,
security,
asset life,
and the purpose of each debt.
Sometimes separating facilities is deliberate.
What if ATO Debt Is Part of the Problem?
Suppose the business owes $250,000 to the ATO.
It also needs $200,000 of ongoing working capital.
That’s not necessarily a $450,000 problem requiring one product.
We need to understand:
how the ATO debt arose,
whether the underlying cashflow gap remains,
what repayment arrangements exist,
and what funding options may be available.
Fixing yesterday’s debt while ignoring tomorrow’s working-capital requirement doesn’t solve the business.
What Does the Business Actually Need?
By this stage of the journey, we should be able to answer:
How much?
For what?
For how long?
How often?
What assets or receivables support the requirement?
How does the business repay it?
Those answers narrow the options considerably.
A Simple Way to Think About It
A term loan can be useful where the business needs an identifiable amount for a defined purpose and will repay it over time.
An overdraft or revolving facility may be useful where the business needs access to working capital that moves up and down.
Debtor or invoice finance may be relevant where significant cash is tied up in eligible commercial receivables.
Asset finance may be relevant when the business needs trucks, vehicles, machinery or equipment.
There can also be other structures depending on the circumstances.
The important word is:
match.
Working Capital Finance Around Appin
Businesses around Appin and the growing Macarthur region can operate across construction, civil works, trades, transport, logistics and businesses supporting expanding residential and commercial development.
Growth can create substantial working-capital requirements.
The answer isn’t automatically another business loan.
First understand what is creating the cash requirement.
Then investigate the facility designed to do that job.
Not Sure Which Business Finance Facility Fits?
Send Thrive Broking an outline of:
how much you need, what creates the cashflow gap, how quickly customers pay, your debtor ledger, existing facilities and any trucks or equipment you’re planning to purchase.
We can separate the requirements and investigate appropriate options.
You might need one facility.
You might need several facilities doing different jobs.
Or part of the answer might be improving the cash cycle before borrowing more.
Don’t start with “Which lender has the cheapest business loan?” Start with “What job does this money need to do?”