The short answer
A working capital loan is short to medium-term business finance used to cover everyday operating costs such as stock, wages, rent and supplier bills while you wait for revenue to come in. In New Zealand it's often unsecured, sized to the gap in your operating cycle, and repaid as sales and customer payments arrive.
What is working capital, and why does it run short?
Working capital is the money tied up in running your business day to day. On paper, it’s your current assets (cash, stock, money owed by customers) minus your current liabilities (supplier accounts, wages, tax owing, short-term debt).
In practice, it’s about timing. Most businesses pay out before they get paid. You buy stock, pay staff and cover rent, and only later do customers pay their invoices or walk in and buy. The stretch between money going out and money coming back is called your operating cycle, and the longer it is, the more working capital you need.
That’s why profitable, growing businesses run short of cash all the time. Growth makes it worse: a bigger order means more stock and more wages upfront, long before the bigger payment arrives.
Where does working capital get stuck?
Every industry has its own pressure points. Here’s where we commonly see cash tied up in Kiwi businesses.
| Business type | Where cash gets stuck | When it bites |
|---|---|---|
| Retail | Stock bought months ahead of peak sales | Pre-Christmas, back to school |
| Construction and trades | Materials, wages, retentions held by head contractors | Between progress claims |
| Wholesale and import | Supplier deposits and freight before goods sell | Ordering for the next season |
| Hospitality | Wages and suppliers through quiet months | Winter in most regions |
| Manufacturing | Raw materials and labour on large orders | Big contracts with long terms |
| Professional services | Work in progress not yet billed or paid | End of financial year, slow payers |
| Agriculture contractors | Fuel, labour and machinery costs before season income | Spring and early summer |
What can a working capital loan pay for?
Working capital loans are for the costs that keep you trading:
- Stock and materials, including bulk buys that unlock supplier discounts
- Wages and PAYE, which for most small employers is due by the 20th of the following month regardless of whether customers have paid
- Supplier accounts, so you keep your terms and your reputation
- GST and provisional tax when the due date lands before the cash does
- Rent, insurance and other fixed costs through a quiet patch
- Upfront costs on a new contract, from extra staff to site set-up
What it shouldn’t fund: long-life assets you’ll use for years. Vehicles and machinery are better matched with equipment and vehicle finance so the repayment term lines up with the asset’s working life. If you’re behind on tax, a dedicated IRD debt loan page explains that situation in detail.
How much working capital should you borrow?
The goal is to borrow enough to close the gap, and no more. A simple way to size it:
- Map your next three to six months of money in and money out, week by week.
- Find the lowest point, the week your bank balance would dip furthest.
- Add a buffer for late payers and surprises, so you’re not back in the same spot in a month.
- Check the repayment against your normal monthly cash flow, not your best month.
The cash flow gap calculator does most of this for you. Borrowing too little means a second application in a few weeks. Borrowing far too much means paying for money you don’t use.
Short-term or longer-term working capital loan?
Match the term to how long the cash is actually tied up.
- Three to twelve months suits a stock build, a seasonal gap or a single large order. The money comes back quickly, so a short term keeps total interest down.
- One to three years suits a permanent step up in the size of your business, such as hiring more staff or carrying more stock because you’ve grown. That isn’t a gap that closes; it’s a new normal.
A common mistake is funding a permanent need with a short-term loan, then refinancing every few months. Another is putting a three-month gap on a long loan and paying interest long after the cash came back. If you’re weighing the two, our short-term business loans page explains when a short term earns its keep.
Which type of working capital finance fits?
There’s more than one way to fund working capital. The right one depends on whether your gap is one-off or recurring, and what security you have.
- Unsecured business loan. A lump sum, usually assessed on your bank statements. LoansOne arranges unsecured business loans from $20,000 to $500,000, with no real estate security required in most cases. Great for a defined gap or a growth push.
- Line of credit. A revolving limit for recurring, unpredictable needs. See business line of credit.
- Invoice finance. Borrowing against unpaid invoices if you sell to other businesses on terms. See invoice finance.
- 1st or 2nd mortgage. If you own property, it can unlock a larger amount and works even when your financials are behind. No cash flow or financial records are needed, and bad credit is OK.
How do lenders assess a working capital loan?
For unsecured working capital, lenders lean heavily on your bank statements. They’re looking for:
- Regular, consistent deposits that show real trading
- How often your account dips into overdraft or bounces payments
- Existing loan repayments and how reliably they’re met
- Tax arrangements with IRD and whether they’re up to date
- Time in business and the directors’ credit history
For property-backed lending, the property and your equity do most of the work, which is why it suits business owners whose records are behind or whose credit has taken a hit.
Signs your business needs working capital finance
Cash pressure rarely arrives as a single crisis. It shows up in small ways first:
- You’re paying suppliers later than their terms, and they’ve started to notice
- You’ve turned down a large order because you couldn’t fund the stock or labour
- Your bank balance swings from comfortable to nervous within the same month
- GST or PAYE payments are being juggled against wages
- You’re missing early-payment discounts that would pay for the finance several times over
If two or more of those sound familiar, it’s usually a timing problem rather than a profitability problem, and timing problems are exactly what working capital finance is designed to fix.
How can you reduce your working capital need?
Borrowing is only one lever. The best-run businesses pull all of them:
- Invoice faster. Send invoices the day the job is finished, not at month end.
- Shorten your terms. Moving key customers from 30 days to 14 days frees up real cash.
- Ask for deposits on large or custom jobs.
- Negotiate supplier terms. A move from 7-day to 20th-of-the-month-following terms can transform your cash cycle.
- Trim slow stock. Product sitting on shelves for months is cash you can’t use.
Do these alongside the right loan and you’ll often need to borrow less, for a shorter time.
Example scenarios
A Tauranga homeware retailer before Christmas. Every year, the owner places her biggest stock order in August to land in October. Suppliers want payment on order, but the sales don’t come until November and December. A short-term unsecured loan covers the order, and it’s repaid from summer trading.
A Christchurch fabrication shop winning a big contract. A new contract will double revenue for six months, but steel, extra staff and overtime have to be paid well before the client’s first payment on 60-day terms. A working capital loan funds the ramp-up so the business can say yes to the job.
A Nelson seafood supplier between seasons. Processing and freight costs peak before export payments arrive. If the owners have equity in their home or premises, a 2nd mortgage for business purposes can bridge the gap, even if the last set of accounts isn’t finalised.
Each of these is an illustrative scenario, not a real client.
What drives the cost?
We don’t quote rates. Every loan is priced on the client’s individual circumstances, and LoansOne works to get the sharpest rate available for your situation. The biggest factors are whether the loan is secured, the term, your trading strength, your credit history and how much you’re borrowing relative to your turnover. A shorter term usually means less total interest, so match the term to how quickly the cash comes back.
Next step
If your business is profitable but cash is stuck in stock, wages or unpaid invoices, let’s free it up. Apply in about 30 seconds. It’s free, doesn’t mark your credit file, and an expert reviews every application before matching you to the right lender. Or call 09-888 5252.
