A working capital loan gives a New Iberia, LA shop a lump sum for payroll, parts and bills while a large invoice is still unpaid, repaid in fixed payments over a few months. This article follows an invented machinery repair shop waiting 45 days on a $38,900 invoice: what the money covers, a loan versus a line, and how to size the request.
Working capital pays the costs that fall due before a customer pays, not the machines. In the invented case a $16,800 request covers three paydays, other bills and a small cushion, less cash on hand; a line repaid the day the invoice clears costs less interest than a six-month loan, as long as the customer pays on time.
What working capital pays for in a shop waiting on payment
An invented case: a machinery repair shop finishes a large job for a plant customer and bills $38,900 on terms that put payment 45 days out. During those 45 days the shop still has to meet payroll, pay its parts suppliers, and cover rent, insurance and fuel for its service vans.
Those costs are what a working capital loan is for: one deposit into the account, sized to the stretch until the customer pays. It is repaid on a fixed schedule, so the payment does not depend on when the customer pays. What it does not pay for well is a machine the shop expects to use for years; that is a separate question, covered further on.
Commercial and industrial machinery repair is a sizable trade in Iberia Parish: 360 employees at employer establishments in 2023, with 15 of the parish’s 32 such establishments under five employees (County Business Patterns, NAICS 811310).
Fixed payments over months versus a revolving line
The same invented $16,800 can come as a loan with fixed payments or as a draw on a revolving line. Invented terms for each:
| Six-month loan | Line draw repaid on day 45 | |
|---|---|---|
| Rate (annual %) | 13.8 | 15.2 |
| Payments | 6 of $2,913.77 | one repayment of $16,800 plus interest |
| Interest | $682.62 | $314.83 |
Here the line costs $367.79 less in interest even at the higher rate, because the money is out for 45 days instead of being repaid across six months. The fixed loan wins on certainty: if the customer pays late, the loan payment stays the same, while interest on the line keeps running until the draw is repaid. The line of credit page describes how draws and paydowns work.
Sizing the request to the invoice gap, not the whole year
A request holds up better when it matches the gap, not a year of expenses. In this invented case, the shop pays $6,720 every two weeks, and a 45-day wait holds 3 or 4 paydays depending on where the first falls. On this shop’s calendar the first payday lands on day 10, so the wait holds 3.
- Payroll: 3 paydays of $6,720 = $20,160
- Parts, rent, insurance and van fuel during the wait: $4,300
- Cushion the owner wants to keep: $2,000
- Less cash already in the account: $9,660
- Request: $16,800
Six fixed payments of $2,913.77 on the invented loan start before the invoice is paid, so the first one or two come out of other receipts. A shop that expects several large invoices in a row may find that a standing line fits that pattern better than a new loan each time.
When an equipment loan fits better than working capital
Sometimes the cash gap exists because the shop paid for a machine out of its account. An invented example: a $27,300 line boring machine bought with cash leaves the account thin just as a big invoice goes out. Working capital would patch the gap, but a machine used for years is a better match for equipment financing, where the machine secures the loan and the term follows its working life.
A simple rule of thumb: costs that turn over within a few months suit working capital or a line; things with a serial number that last for years suit an equipment loan. A card-sales business with daily deposits has a third choice, the card-sales advance, collected as a share of sales.
By Marbleline Business Loans · Updated
