Working capital loan – definition, interest, amortization

A working capital loan is short- to medium-term debt that serves to finance the current assets of companies / self-employed. He is usually in overdraft / frame of banks on the current account ( “working capital loan” or “revolving (” Working Capital Facility “) or as a short-term loan business loan provided”) are available.


The working capital loan is thus part of the debt financing of a company. In contrast to the investment loan, however , the use of working capital loans is not in the financing of fixed assets but solely in the financing of current assets.



Sometimes the working capital loan is also referred to as a business loan or business loan.

But this is so far better than the applicable German name even as the operating loan just to finance gaps in working capital is used.



The interest on a working capital loan usually results from the reference interest rate (EURIBOR 3M or EONIA) plus the margin of the bank. However, instead of the reference interest rate, it is also possible to agree on a fixed rate (“baw rate”) which can be adjusted in the event of certain circumstances.

In addition, in some banks the option of interest to provide the working capital facility with a maximum interest rate ( “cap”). As a result, the borrower never pays more than the specified maximum rate during the term. At the same time, he benefits in the event that interest rates fall.

Of course, current conditions for a working capital loan can only be mentioned after a detailed analysis of the loan request and the requesting company.

For in addition to the general interest rate, the creditworthiness of the company and the exact loan request are factors influencing the individual interest rate for a working capital loan.

Of the currently historically low interest rates , loans with interest rate hedge profit predominantly as they preserve the favorable interest rate level for the customer. It is therefore often worthwhile to consider a rescheduling of working capital loans (possibly used on a long-term basis) in loans with interest rate hedging (“refinancing of dregs utilization”) and repayment structure.



The working capital loan will be provided either as a bank overdraft facility or until further notice (baw) or as a short term loan. The term of the working capital loan is therefore basically unlimited and long-term leases are not uncommon.

Accordingly, no regular repayment is agreed. Instead, the customer can terminate the working capital loan at any time. In the case of termination, the working capital loan is of course fully repayable.

Likewise, if and when it no longer considers that the working capital loan is eligible, the Bank may require full repayment of the working capital loan (subject to a time limit). The working capital loan is then to be paid back immediately in one sum. If this is not possible for the CN, the agreement of an installment payment is conceivable.


The maximum possible amount of the working capital loan in the specific case depends on the creditworthiness of the applicant and the possible collateral.

A first indication of the amount of a working capital loan in a specific case is possible, as a rule, the financial ratios. If financial ratios such as the net debt ratio, the interest cover ratio and the capital adequacy ratio are still close to the investment grade, the amount of the working capital loan should be acceptable for the bank and the client.

In general, it should be said that the maximum amount of working capital loans is not based on sales but on the working capital of the customer. Because the working capital loan is just meant to cover funding gaps in the net working capital.

In addition to the classic bilateral lending by a single bank, structured financing – such as syndicated financing – is also conceivable.


In addition to interest , the cost of a working capital loan regularly includes a provisioning fee (25-35% of the applicable margin ) and, less frequently, a processing fee .

However, the processing fee is not charged by each bank and for each working capital loan. You can of credit to credit major.

Here it is important to check the concrete offer for a working capital loan exactly!


In theory, all conceivable collateral is eligible for collateral for a working capital loan. In practice, there is a regular collateralization by means of collateral for the net working capital : Assignment of the goods warehouse and assignment of trade receivables . In addition, of course, further collateral are conceivable and possible.

A guarantee can also increase the security of the bank and – if the guarantor has the credit rating – supplement or even replace classic collateral.

A working capital loan without collateral is possible, but of course dependent on a high credit rating of the borrower. If this is true, however, a working capital loan without collateral is within the possibilities.



The most important requirement for a working capital loan is the creditworthiness of the applicant (natural or legal person).

And so also applies to working capital loans, the principle that any statement about the creditworthiness of borrowers and any guarantors must be supported by documents.

In case of doubt, the applicant should rather have a document more than necessary in order to prove his creditworthiness and financial position all the more fully and conclusively.

As a rule, necessary documents for applying for a working capital loan are:

  • Legitimization documents (identity card / passport, register extracts)
  • last three financial statements
  • last tax assessment
  • Corporate Planning / Business Plan

In addition, further documents may be necessary depending on the purpose of the loan and the business model of the applying company in the specific case.

Applying for a loan and filing documents are often available online today.

advantages and disadvantages


  • Avoidance of liquidity bottlenecks in the current business
  • greater flexibility due to ongoing utilization and repayment options
  • Possibility of fixing an interest cap (“cap”)
  • often cheaper financing situation compared to supplier credit through the use of cash discount payments
  • Benefit from falling interest rates
  • Approaches for funding (KfW, ISB and LfA); especially for start-ups


  • often more expensive interest rate than fixed rate loans
  • Standby interest
  • negative impact on rising interest rates, but fixing upper limit interest rate (“cap”) possible


If the customer wants to apply for a working capital loan through his bank, he must contact the bank directly.

The actual application will then be prepared by the bank adviser for the client and – as far as necessary – represented against the bank’s internal lending decision.

In my article series ” Applying for loans for corporate clients “, I have already outlined which topics the bank will examine in the context of the loan application process and how you can positively influence them.



The interest on a working capital loan is, of course, tax deductible for freelancers and self-employed persons, and for business expenses (as they serve to acquire, safeguard and preserve the entrepreneur’s income) and hence tax deductible.

Working capital loan: calculator and formulas

The actual need for working capital loan can be approximately calculated using the following formula:

(Amount of planned goods use * turnover rate)

+ (planned turnover * (average payment target / 360))

– Average amount of advance payments – Utilization of supplier credits

= Equipment requirement

A simpler way to determine the actual amount of resources needed is the use of our free computer.

Calculator resource requirement


Whether the utilization of a working capital credit line for the use of cash discount in the specific case is advantageous, you can determine advantage calculator with our free discount account.

Calculator discount advantage