Working capital loan options compared: what are my choices when cash runs short?

A short-term loan, a line of credit, an overdraft, invoice finance and stock finance all solve the same basic problem: money has to go out before money comes in. They solve it in very different ways. Pick the wrong one and you can end up paying for money you aren’t using, or locked into repayments that don’t match when your customers pay.

This guide sets the five structures side by side on the five measures used across this site: size, speed, security, paperwork and repayments. It won’t name lenders or quote rates, because those depend on your business. What it will do is help you match the structure to the cause of your gap before you collect any offers.

What are my working capital options?

Option	How it works	Best for
Short-term (term) loan	A lump sum, repaid in set instalments over a fixed term	A one-off gap with a known end
Business line of credit	A limit you draw on, repay and draw again	Gaps that recur or vary in size
Overdraft	A limit attached to your business transaction account	Small day-to-day swings, usually through a bank
Invoice finance	Funds released against unpaid invoices, repaid when customers pay	Slow-paying business customers
Stock (inventory) finance	Funding to buy stock, secured by the stock	Seasonal buying, retail and wholesale

For the wider picture of how working capital works, see our page on working capital loans.

How do the five compare on size, speed, security, paperwork and repayments?

Measure	Term loan	Line of credit	Overdraft	Invoice finance	Stock finance
Size	Fixed amount agreed up front	A limit; you may draw less	A limit set by the bank	Follows the invoices outstanding	Follows the stock being bought
Speed	Depends on paperwork; statements-only loans tend to move quicker	Quick to use once set up; setting up varies	Usually slower to arrange and review	Setup involves checking your debtors, then funding follows sales	Needs stock and supplier details checked
Security	Often unsecured at smaller sizes	Unsecured or secured, depending on the limit	Frequently property-backed with banks	The invoices themselves	The stock
Paperwork	Bank statements, turnover	Bank statements, sometimes financials	Financials and often a bank review	Debtor ledger, invoice copies	Stock lists, supplier invoices
Repayments	Fixed instalments	Interest-style charges on the drawn balance, with the limit available again	Charged on the overdrawn balance	Repaid as customers pay, plus fees	Repaid as stock sells or on a set schedule

Three patterns stand out. First, how cost builds up differs. A term loan is priced on the full amount for the full term. A line of credit or overdraft is generally priced on what you have drawn, for the days you have drawn it. Invoice finance charges against the invoices, for the time they are outstanding.

Second, security follows the thing being funded. Invoice finance is backed by invoices and stock finance by stock, so neither needs the family home. Overdrafts from banks more often do.

Third, repayment style follows the cause of the gap. A fixed monthly repayment suits a business whose income is steady. Repayments that rise and fall with customer payments suit a business whose income is lumpy.

Which option suits which cause of cash shortage?

The cause of the gap is a better guide than the product name.

• A one-off shortfall (a big supplier deposit, a slow month, a one-time wage gap): a short-term loan gives a fixed amount and a clear end date.
• A gap that keeps coming back (seasonal trade, quarterly bills): a line of credit or overdraft, because you only pay for what you use and the limit refreshes as you repay.
• Customers who pay late: invoice finance, because the funding is released against sales already made. Our guide to invoice finance explains how it is repaid.
• Stock that has to be bought ahead of a busy season: stock finance, which is sized to the purchase.
• Fast growth: often a line of credit, as the limit can move with the business, though larger limits ask for more security.

Slow payment is a real driver. The Payment Times Reporting Scheme regulator’s August 2026 update (covering 1 July to 31 December 2025) reported that 69.8 per cent of invoices from reporting large businesses were paid within 30 days. That also means roughly three in ten were not. The same update put the all-industry average 95th-percentile payment time at 55 days, meaning the slowest one in twenty invoices took close to two months. If your customers include big businesses, build that tail into your cash planning. The regulator’s update has the detail.

What does a $30,000 shortfall look like under each option?

Here is an illustration with round numbers, not a quote. A trade supplier has to pay $30,000 to restock before a busy period. Customers will pay about 45 to 60 days later.

• Term loan: The business borrows $30,000 and repays it in instalments over, say, six months. Cost is charged on the whole amount, and the early instalments come due before some customers have paid. The total is known on day one.
• Line of credit: A $30,000 limit is drawn in full for the restock, then paid down as customers pay. Cost is only incurred for the days the money is drawn, so a gap that closes in 60 days costs less than a six-month loan. The risk is behavioural: an open limit is easy to keep using.
• Overdraft: Works much the same way as a line of credit, but it is tied to the transaction account and reviewed by the bank. If the bank reviews the limit during the busy period, the funds can be reduced when you most need them.
• Invoice finance: If the real issue is $40,000 of invoices waiting to be paid, a portion is released against them straight away and settled when customers pay. The amount you can access goes up as your sales go up.
• Stock finance: If the $30,000 is the stock purchase itself, the loan is secured by that stock and repaid as it sells.

Same shortfall, five different shapes of repayment. The cheapest in dollars is usually the one whose timing most closely matches when your own money arrives, because you stop paying for funds you no longer need. The loan offer comparer lines offers up in total dollars so you can see it.

Wondering which structure fits your own gap? You can check your options here in about a minute.

What traps catch people comparing working capital finance?

• Comparing the repayment, not the total. A smaller repayment over a longer term can cost more overall. Add up fees and the total repaid.
• Ignoring fees other than interest. Establishment, line, drawdown and early-payout fees can matter as much as the headline cost. Moneysmart’s small business loan guidance is a good checklist of what to ask about.
• Treating a limit as spare cash. A line of credit you keep drawn is a loan with no end date.
• Forgetting what the facility can be withdrawn on. Overdrafts and some lines can be reviewed, reduced or called by the lender under the terms, so read the clauses on review and default.
• Borrowing for a margin problem. If you are short every month, the gap isn’t timing. business.gov.au’s cash flow guidance covers fixing the cause alongside any borrowing.
• Overlooking the cheaper fix. Faster invoicing, deposits, or longer supplier terms can shrink the gap before any finance is needed.

How do I choose between them in practice?

A simple sequence works well:

1. Size the gap and its length. Write down how much and for how many weeks. A 30-day gap and a 6-month gap point to different tools.
2. Name the cause. Slow customers, seasonal stock, growth or a one-off cost.
3. Match the structure using the table above.
4. Ask for the total in dollars under each shortlisted option, over the period you expect to use it.
5. Check the exit. Early payout terms, review rights and what security is involved.

Our business loan comparison tool walks through the first three steps, and the page on repayment styles shows how each pattern affects your weekly cash. If you want the broader menu beyond working capital, small business loans compared covers the full range. The line of credit option has its own page.

Ready to find the structure that fits your gap?

Choosing between five structures is easier with someone who can see your actual numbers. If you’d like to find out where you stand, the enquiry takes about 60 seconds, and nothing is checked against your credit file when you first ask, so enquiring won’t affect your credit score.

We don’t send your details to a pile of lenders, so your phone won’t start ringing off the hook. A real person reads your situation, compares the options that suit the cause of your gap and calls you to talk it through. To get the right match first time, please fill the form in as accurately as you can: the amount, the timing and how your customers pay.

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