5 Ways a Working Capital Loan Helps Your Business Grow

As a business owner in Australia I’ve seen first hand how useful a working capital loan can be (so long as it’s used correctly).

Understanding working capital loans is crucial for making informed financial decisions and leveraging these loans effectively for business growth.

Whether you’re a small café in Melbourne or a tech startup in Sydney, having access to funds can mean the difference between growing, or not, so long as you invest the funding in areas that can generate increased revenue, or reduce your overheads. That’s where working capital loans come in. These aren’t just for keeping the lights on – they can be a powerful growth driver when used wisely.

In this article I’ll show you 5 ways you can use a working capital loan to grow your business. We’ll go into each one in detail to help you make an informed decision about your business finance.

5 Ways Working Capital Loans Can Help You Grow

1) Investing in New Technology

Markets are changing, fast. And for many businesses, being technologically competitive isn’t an advantage – it’s a requirement. A working capital loan can provide the funds to invest in technology that will change your business and set you apart from the rest.

The ABS says businesses that innovate are 1.4 times more likely to report increased productivity than those that don’t. This shows how important technology investment is for business growth.

Take the example of a mid-sized manufacturing business in Brisbane that used a working capital loan to invest in new robotics and automation systems. The upfront cost was big but the long term benefits were massive. Within 18 months their production efficiency was up 40% and they were able to take on bigger jobs and increase their revenue by a lot.

When considering this option you need to do a cost benefit analysis. The upfront cost may be high but the potential for increased efficiency, reduced labour costs and better product quality can lead to big long term savings and growth.

Some areas to consider investing in:

• Artificial Intelligence (AI) and Machine Learning (ML) tools

• Cloud computing and data analytics software

• Advanced Customer Relationship Management (CRM) systems

• Industry specific automation technologies

Remember it’s not just about adopting technology for technology’s sake but to strategically implement solutions that solve your business needs and help you achieve your growth goals.

2) Expanding into New Markets

Expansion is a natural way to grow your business, and a secured business loan can provide the funds to explore and enter new markets. This could be geographic expansion in Australia, international markets or new demographic segments.

The Australian Trade and Investment Commission says businesses that export are on average more profitable than those that don’t. This means market expansion, especially international expansion, can be a profitable growth strategy.

Let’s take an example. A boutique winery in South Australia used a working capital loan to fund market research and entry strategies for the Chinese market. The loan covered costs of market analysis, product adaptation (new packaging and labelling), export compliance and initial marketing. Within 2 years their exports to China were 30% of their total sales and their overall revenue was up significantly.

When expanding into new markets here are some areas to consider using a working capital loan for:

• Market research and feasibility studies

• Product adaptation and localisation

• Marketing and advertising in the new market

• Setting up new distribution channels

• Hiring and training staff for the new market

Remember market expansion comes with its own risks. Planning, research and understanding the new market is key to success. A working capital loan can provide the financial buffer to navigate these challenges and get established in the new market.

3) Bulk Buying for Long Term Savings

One often overlooked way to use a working capital loan is for bulk buying. By buying inventory or raw materials in bulk you can often get better deals from suppliers and save money in the long term.

Effective management of accounts payable is crucial when considering bulk purchases, as it impacts your current liabilities and overall financial health.

The concept of economies of scale is well understood in business theory but many small and medium sized enterprises (SMEs) in Australia struggle to take advantage of it due to cash flow constraints. A working capital loan can fill the gap and allow businesses to access the benefits of bulk buying.

Take this example: A small food manufacturer in Perth orders ingredients monthly due to cash flow constraints. By getting a working capital loan they were able to order quarterly in bulk. This resulted in a 15% reduction in ingredient cost and they also got priority status with their suppliers so they get more reliable deliveries.

Here’s a simple table to illustrate the savings:

Order frequency	Order size	Cost per unit	Total annual cost
Monthly	1000 units	$10	$120,000
Quarterly	3000 units	$8.50	$102,000

Annual Savings: $18,000 (15%)

Things to consider:

• Storage costs. Do you have enough storage to handle larger inventory?

• Perishability. For perishable goods balance bulk discounts against the risk of spoilage.

• Cash flow impact. While you’ll save money overall, larger upfront payments can impact short term cash flow.

• Supplier relationships. Larger orders can get you better terms and priority status with suppliers.

By using a working capital loan to fund bulk buying you’re essentially investing in future savings. Just make sure you calculate the return on investment carefully considering all the costs and benefits.

4) Investing in Human Capital

Your staff are one of your most valuable assets and investing in their development can pay big dividends for your business. A working capital loan can fund comprehensive training and development programs to upskill your team.

According to the Australian HR Institute companies that invest in employee training see 24% higher profit margins than those who don’t. This statistic is concrete evidence of the benefits of investing in your people.

Here’s a case study. A medium sized IT services company in Melbourne used a working capital loan to fund a six month training program for their staff. The program covered advanced technical skills, project management and soft skills like communication and leadership. The results were:

30% increase in project completion rates

25% increase in customer satisfaction scores

20% reduction in staff turnover

The loan allowed them to invest in quality training without impacting their day to day operations. Within a year the increased efficiency and better service quality led to a 35% increase in new clients, more than paying back the loan.

Here are some ways you can invest in human capital with a working capital loan:

• Technical skills training

• Leadership and management development programs

• Industry certifications and qualifications

• Team-building and company culture initiatives

• Employee wellness programs

Remember investing in your team isn’t just about improving skills – it’s about building a motivated and engaged workforce that can drive your business forward. While the returns may not be as tangible as other investments, the long term benefits in productivity, innovation and staff retention can be big.

5) Launching a full scale marketing campaign

In today’s competitive business environment visibility is everything. A well run marketing campaign can increase your brand awareness, attract new customers and drive sales. But good marketing often requires a big upfront investment – something a working capital loan can fund.

Managing business cash flow is essential when funding a marketing campaign, as it ensures you can cover the upfront costs without straining your finances.

The Australian Marketing Institute says businesses that maintain or increase their marketing spend during tough economic times are 2.5 times more likely to grow than those that cut back. This is evidence of the importance of consistent and strategic marketing.

Here’s an example. A boutique clothing retailer in Sydney used a working capital loan to fund a full scale omnichannel marketing campaign. The campaign included:

• A new mobile optimised website

• Targeted social media advertising

• Influencer partnerships

• Pop up shops in high foot traffic areas

• A customer loyalty program

The upfront investment was big but the results were impressive. Within 6 months they saw:

• 150% increase in website traffic

• 80% increase in social media followers

• 60% increase in online sales

• 40% increase in foot traffic to their physical store

The working capital loan allowed them to run a comprehensive marketing strategy they couldn’t have done with their normal cash flow. The increased visibility and sales paid back the loan many times over and set them up for long term growth.

When planning a marketing blitz funded by a working capital loan consider:

• Digital marketing (SEO, PPC, social media advertising)

• Content marketing (blog posts, videos, podcasts)

• Traditional advertising (print, radio, TV)

• PR and media outreach

• Event marketing and sponsorships

• Customer retention programs

The key is a well planned integrated approach that uses multiple channels to reach your target market. A working capital loan can provide the funds to run such a campaign and potentially drive big brand awareness and sales.

Working Capital Loan Repayments Calculator

Understanding Working Capital Loans

Before we get into these strategies let’s understand what working capital loans are and how they work. A working capital loan is a type of business finance that funds the day to day operations of a business. Unlike long term loans used for big ticket items like property or equipment, working capital loans are short term and used to fund operational costs or take advantage of immediate business opportunities.

In Australia there are several types of working capital loans:

Line of Credit

This gives you access to a set amount of funds you can draw down as needed. You only pay interest on what you use.

Short term Loans

These are lump sum loans with fixed repayment terms, usually less than 12 months, and are often referred to as term loans.

Invoice Financing

This allows you to borrow against your unpaid invoices and improve cash flow.

Merchant Cash Advances

These provide upfront cash in exchange for a percentage of your future credit card sales.

Unsecured loans are another option, which do not require collateral but typically demand a high credit rating and established business history.

Business Credit Cards

Not a traditional loan but can provide short term financing for smaller expenses.

Small business loans can be accessed from both banks and non-bank lenders, offering various terms and conditions to suit different business needs.

When considering a working capital loan you need to understand the terms, interest rates, repayment schedules and any collateral requirements. Your business credit score, cash flow and overall financial health will play a big part in determining your eligibility and the terms of the loan.

Also worth noting is the Australian government has various support programs for small businesses including low interest loans and grants.

Getting the Most Out of Your Working Capital Loan

We’ve looked at 5 ways to use a working capital loan to grow your business but the key is how you execute. Here are some extra tips to help you get the most out of your working capital loan:

Have a Plan: Before you take out a loan have a clear plan on how you’ll use the funds and how this will contribute to your business growth. This will not only help you use the funds better but can also increase your chances of getting approved.

Measure Your ROI: Monitor the return on investment for each strategy you implement. This will help you know which ones work for your business and inform future decisions.

Keep Cash Flow Healthy: A working capital loan can provide a cash injection but you need to keep cash flow healthy to be able to meet your repayments. Aligning the loan usage with your company’s cash flow needs is crucial to ensure you can meet repayment schedules without financial strain. Consider using accounting software to track your finances and forecast your future cash flow.

Diversify: Don’t put all your eggs in one basket. Try a combination of the strategies above to create a balanced approach to growth.

Get Advice: Talk to a business finance broker or your accountant who can give you personalised advice based on your business situation and goals.

Stay Informed: Stay up to date with market trends, industry changes and new opportunities. This will help you make better decisions on how to use your working capital loan.

Build Relationships: Whether it’s with your suppliers, customers or lenders, strong relationships can open up new opportunities and help you navigate through challenges.

Getting Started..

A working capital loan can be a great tool for business growth if used wisely. Invest in technology, expand into new markets, take advantage of bulk purchasing, develop your team or launch a marketing campaign and you can use these loans to grow your business.

But remember to approach working capital loans with caution. Understand the terms of the loan, have a clear plan on how you’ll use the funds and make sure your projected returns outweigh the cost of borrowing. Remember the goal is not just to get more funds but to use those funds to grow your business sustainably. A working capital loan can give you the financial flexibility to act on opportunities and not just survive but thrive.

Whether you’re a small business owner in regional Australia or managing a growing business in one of our major cities, consider how a working capital loan can fit into your growth plan. With a clear plan and execution, it can be the spark that takes your business to new heights.