How much working capital finance can a business get?

There is no single formula across lenders, but the starting point is the business's own cycle: how many days of sales are tied up in debtors and stock, less the days suppliers carry. A bank converts that to money, removes what is already funded long term, and tests the peak month. It then checks that cash flow can carry the interest. Where the line depends on a ledger or stock, the amount also moves with those assets.

What is the difference between a working capital facility and an overdraft?

An overdraft is one product that can serve as a working capital facility. Working capital facility describes the purpose: funding the wait between buying stock and collecting from customers. An overdraft sits on the current account and is commonly repayable on demand. A committed revolver has a set term and separate documents. Invoice finance is tied to the sales ledger. Each can fund the same gap with different certainty and cost.

Can a term loan be used for working capital?

It can, and for the part of working capital that does not come back it may be the right structure, since that balance needs repaying from earnings over years. The problem arises when a term loan funds a genuinely fluctuating need, because the business pays interest on money it does not need for part of the year. Lenders often split the requirement into a permanent amortising piece and a revolving piece.

Is a working capital facility secured?

Often, though it depends on the borrower. In New Zealand and Australia a bank commonly takes a general security interest over receivables and stock, registered on the personal property securities register. In the UK the equivalent is usually a debenture with fixed and floating charges, or the sale or assignment of receivables under an invoice finance arrangement. Larger, stronger companies may borrow unsecured, usually with a negative pledge.

// WORKED EXAMPLETHE ARITHMETIC A DECISION RESTS ON

Working Capital Facility: a Worked Example

The cycle sets the size. The request only starts the conversation.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-09 · 6 MIN READ

// THE SHORT ANSWER

The useful question about a working capital facility is how big it should be, and the answer comes from the business's trading terms more than from the figure it asks for. Stock has to be bought and customers given time to pay, and suppliers fund only part of that wait. A bank measures the remainder in days, converts it to money at the size of the business, and looks at how the balance moves across a year. The line it then offers, commonly a revolver or overdraft, is meant to rise and fall with that cycle and to come back.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 11 — The Term Sheet War. A nine-year client brings a competitor's term sheet: 40 basis points inside your pricing, covenant-lite, and a Friday deadline. Your call first, then the senior banker's.

Read the file →

PART OF Corporate Lending and Credit Risk

// 01 — A PURPOSE, NOT A PRODUCT

A working capital facility is named for what it funds. The product underneath might be an overdraft, a revolving credit facility, invoice finance, a seasonal line or a run of trade loans. What they share is the repayment logic. US supervisors put it plainly for seasonal and working capital loans: repayment is expected to come from turning the financed assets back into cash, so the structure of the loan should follow when that happens.

That is why a lender cares about the fit. Debt that funds a gap which closes can be repaid by the closing of the gap. Debt that funds something that stays in the business needs years of earnings, and a short revolving line is the wrong shape for that.

// 02 — HOW IT IS SIZED

Cash conversion cycle = debtor days + stock days − creditor days

Quick need = cycle ÷ 365 × sales

Strict need = debtor days ÷ 365 × sales

+ stock days ÷ 365 × cost of sales

− creditor days ÷ 365 × cost of sales

The quick version is good for a first sense of scale. The strict version allows for the fact that stock and suppliers run at cost, not at selling price; the cash conversion cycle example sets out the two side by side. Either way, the result is what the trading cycle ties up, and it is not yet the facility. Part of it is already funded by shareholders' money and long-term debt. And it is a year-end figure, where the facility has to work on the heaviest day of the year, so a lender also reads the monthly or daily balance to find the peak and the low point.

The difference between those two points is the swing, which is what a revolving line does well. The low point is the part that does not revolve at all. Where the line is tied to receivables or stock, a borrowing base performs the sizing continuously instead.

// 03 — THE EXAMPLE

A maker of commercial ventilation ducting, constructed for this page like every figure in it, has sales of US$32m and cost of sales of US$24m. Debtor days are 55, stock days 60 and creditor days 40. It has a US$5.0m revolving line and asks for US$8.0m, citing 20% growth next year. All of these levels belong to the example. In US$m:

Cycle: 55 + 60 − 40 = 75 days

Quick: 75 ÷ 365 × 32.0 = 6.58

Debtors 55 ÷ 365 × 32.0 4.82

Stock 60 ÷ 365 × 24.0 3.95

Creditors 40 ÷ 365 × 24.0 (2.63)

Need at present size 6.14

Funded by equity, term debt (3.20)

Left for the line, average 2.94

Line over the last 12 months: low 1.40, peak 4.60

Growth at unchanged days: 6.14 × 20% = 1.23

Peak next year: 4.60 + 1.23 = 5.83

Request: 8.00

Not explained by the cycle 2.17

The conversation then turns to the US$2.17m. US$1.5m of it is a new folding machine planned for next year, which will be in the business for a decade and which belongs on a term loan. The remaining US$0.67m has no named purpose. In this example the bank offers a US$6.0m line and a separate US$1.5m term loan, and asks what the rest is for.

One more calculation guards the growth allowance. If debtor days slipped from 55 to 65 at next year's sales of US$38.4m, that alone would tie up US$1.05m (10 ÷ 365 × 38.4), nearly all of the US$1.23m. A larger limit would then be funding slower collections while appearing to fund growth.

// 04 — WHICH FACILITY CARRIES THE NEED

An overdraft is simple but commonly repayable on demand, so it suits small timing differences better than a core requirement. A committed revolver costs a commitment fee and gives certainty for its term. Invoice finance grows with the ledger, and its availability falls with it too. Trade loans suit large, identifiable transactions, and a seasonal line suits a peak that comes and goes once a year.

A balance that does not come back needs separate treatment. US supervisory guidance describes lenders dividing permanent working capital from a true revolver and converting stagnant balances to amortising loans. A clean-down is the contractual test of the distinction, and a term-out is how the permanent part is moved. The mistake runs both ways: term debt for a need that comes and goes means paying for money the business holds idle, and a revolver for a need that stays means relying on a renewal every year.

DEFINED IN ONE PARAGRAPH → · HOW BANKS ASSESS A WORKING CAPITAL REQUEST → · THE CASE STUDY →

// 05 — WHERE IT DECIDES A FILE

A limit set at a round figure, with no relation to days and sales, cannot tell anyone later whether it is too large or too small. Once it is tied to the cycle, a lender can read the monthly pack against it and see the drift early.

It also matters whether profit is turning into cash. A business reporting profits while its debtors and stock outrun its sales is asking the bank to fund a conversion problem, and a larger line will postpone that conversation only for a while. How Bankers Think treats the reading of a working capital request at length.

ISSUE 01: PACIFIC PREMIUM FOODS → · ISSUE 04: HIGHVIEW INDUSTRIES → · LINE OF CREDIT VS TERM LOAN →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

Board of Governors of the Federal Reserve System (US), Commercial Bank Examination Manual, section 2080.1 Commercial and Industrial Loans (November 2020), pages 1–2 — Describes seasonal and working capital loans as repaid from the conversion of financed assets to cash, structured around the timing of that conversion — section 01.
Office of the Comptroller of the Currency (US), Comptroller's Handbook: Accounts Receivable and Inventory Financing, March 2000 — pages 8–9 — Describes permanent working capital as the part of a revolver not repaid annually, and converting stagnant balances to amortising loans — section 04.

// QUESTIONS PEOPLE ASK

How much working capital finance can a business get?: There is no single formula across lenders, but the starting point is the business's own cycle: how many days of sales are tied up in debtors and stock, less the days suppliers carry. A bank converts that to money, removes what is already funded long term, and tests the peak month. It then checks that cash flow can carry the interest. Where the line depends on a ledger or stock, the amount also moves with those assets.
What is the difference between a working capital facility and an overdraft?: An overdraft is one product that can serve as a working capital facility. Working capital facility describes the purpose: funding the wait between buying stock and collecting from customers. An overdraft sits on the current account and is commonly repayable on demand. A committed revolver has a set term and separate documents. Invoice finance is tied to the sales ledger. Each can fund the same gap with different certainty and cost.
Can a term loan be used for working capital?: It can, and for the part of working capital that does not come back it may be the right structure, since that balance needs repaying from earnings over years. The problem arises when a term loan funds a genuinely fluctuating need, because the business pays interest on money it does not need for part of the year. Lenders often split the requirement into a permanent amortising piece and a revolving piece.
Is a working capital facility secured?: Often, though it depends on the borrower. In New Zealand and Australia a bank commonly takes a general security interest over receivables and stock, registered on the personal property securities register. In the UK the equivalent is usually a debenture with fixed and floating charges, or the sale or assignment of receivables under an invoice finance arrangement. Larger, stronger companies may borrow unsecured, usually with a negative pledge.

// NEXT TO IT

// ON WHOSE DESK

The seats that read this term in an ordinary week. Each page says what the seat is for, who arrives in it, and the shape of the round it runs.

Business relationship managerCarries a book of trading businesses — wins them, keeps them, and is the bank's voice when the answer is no.
Credit analystReads a borrower and writes the recommendation a decision-maker will act on.
Lending operations officerTurns an approval into a working facility — documentation, security, drawdown, and the register that says what the bank actually holds.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE NUMBER · THE LOAN · CAPACITY

A company asks to refinance. Its year in four numbers:

EBITDA: US$6m
Capex + tax: US$2m
Interest: US$1m
Principal due: US$2m

What is its debt service cover, on cash available after capital spending and tax?

5 MORE ON THE LOAN · CAPACITY →WHERE DO YOU READ FROM? THE PLACEMENT →

THE READING ROOMIN ONE PARAGRAPHWorking capital facility What is a working capital facility, and what is it actually sized against?