Quick answer
A working capital loan funds the day-to-day running of a New Zealand business, such as stock, wages, supplier bills and the gap while customers pay. It's usually a short term loan of a few months to two years, sized from bank statements and trading history, and can be unsecured or backed by property. It works best when there's a clear source of repayment, like seasonal sales, a contract payment or debtors catching up.
Key points
- Covers running costs, not long-life assets.
- Usually a few months to two years.
- Sized from bank statements and trading history.
- Plan exactly where repayments will come from.
- Used for
- Stock, wages, suppliers, debtor gaps
- Typical term
- Three months to two years
- Security
- Unsecured or property-backed
- Key question
- What repays it
Profitable businesses run out of cash all the time. A café buys its winter stock, a wholesaler waits sixty days for a supermarket to pay, an engineering firm wins a contract that needs materials months before the first invoice. On paper, everything’s fine. In the bank account, it isn’t. Working capital loans exist to cover that mismatch between when money goes out and when it comes back.
Where working capital gets stuck
| Where it’s tied up | Example |
|---|---|
| Stock | A retailer buying for the summer season in spring |
| Debtors | A contractor waiting 45 days for invoices to be paid |
| Prepayments | Insurance, leases or annual subscriptions paid upfront |
| Growth | New orders that need staff and materials first |
| Tax timing | A large GST or provisional tax payment due in one hit |
Knowing which of these is causing the gap helps you pick the right amount and term, and helps the lender understand why you need the money.
How lenders size the loan
For most working capital loans, the lender reads your bank statements to see turnover, balances and existing repayments, checks that GST returns are filed, and reviews credit files. Some will also look at an aged debtors list or upcoming contracts. If the loan is backed by property, the property and your exit plan matter more than the statements.
Matching the term to the gap
The common mistake is borrowing for too long or too short. If the gap is seasonal, say three months of quiet trading before a busy summer, a six to nine month loan repaid from the busy months makes sense. If the gap is caused by steady growth, a longer term or a line of credit may fit better. Short loans with heavy weekly repayments can create a new cash flow problem while solving the old one.
Planning the repayment
Before you borrow, write down where the repayments will come from and when. “From November and December sales” or “from the progress payments under the attached contract” is the kind of answer a lender wants to see. It’s also the answer that protects you, because it forces a check that the numbers work.
An illustrative example
A Christchurch food wholesaler has won a supply agreement with a regional grocery chain. The chain pays on 60-day terms, but the wholesaler must pay its producers within 14 days. For the first three months, about $80,000 of working capital will be tied up. It takes a twelve-month working capital loan of $80,000, sized on its existing trading and supported by the signed supply agreement, and plans to repay it as the chain’s payments settle into a monthly rhythm. Illustrative only.
Working capital and IRD
Tax often turns up as a working capital pressure, especially GST after a big quarter or terminal tax after a good year. Before borrowing to pay IRD, check whether an instalment arrangement is available, because it may cost less. If IRD debt is already large or growing, see IRD tax debt loans for the options.
Reducing how much you need
A loan isn’t the only lever. Tightening debtor terms, sending invoices on the day work is finished, ordering stock in smaller batches or negotiating longer terms with key suppliers can all free up working capital. Combining a couple of these with a smaller loan is often cheaper than borrowing the whole gap.
Signs the problem isn’t timing
If you need a working capital loan every quarter and the balance keeps growing, the issue may be margins rather than timing. In that case, borrowing more only delays the hard decisions. Talk with your accountant about pricing, costs and whether some products or customers are losing money before you take on more debt.
Unsecured or property-backed
Most working capital loans for smaller amounts are unsecured, relying on bank statements and a director guarantee. For larger gaps, or where the paperwork is behind, a loan backed by a second mortgage can offer more room and a longer term, with lower repayments each month. The cost is that property is at risk if the loan isn’t repaid, so the amount should be kept to what’s needed and the exit should be clear.
What to have ready
- Twelve months of business bank statements.
- Your latest GST returns and an IRD statement of account.
- An aged debtors list, if customers owe you money.
- Any contracts, purchase orders or supply agreements behind the gap.
- A short note on how and when the loan will be repaid.
Tell us where the cash is stuck
Tell us what’s tying up your cash, how much and for how long, and what will free it up. Asking won’t mark your file, your details aren’t passed down a list, and one real person reads your enquiry and calls you to talk it through. Start your enquiry.
Frequently asked questions
What counts as working capital?
The money tied up in running the business: stock, money owed by customers, and the cash needed to pay suppliers, staff and overheads before sales turn into cash.
Can I use a working capital loan to pay IRD?
Sometimes, but compare it with an IRD instalment arrangement first. Our IRD tax debt page explains the trade-offs.
Should I choose a loan or a line of credit?
A loan suits a one-off or seasonal gap with a clear end. A line of credit suits a gap that opens and closes every month.
What if my business is growing fast?
Growth often needs more working capital because stock and debtors grow ahead of cash. Show the lender your orders or contracts so it can see the growth is real.