GlossaryPayments & Finance
Working Capital Loan
Also called: working capital finance
What is Working Capital Loan?
A working capital loan funds day-to-day operations — buying stock, paying salaries, bridging the gap until customers pay — rather than buying long-lived assets. It is usually short-term and often revolving.
Why Working Capital Loan matters
Growth consumes working capital before it produces profit, so borrowing to fund the gap can be entirely rational. Borrowing to fund persistent losses is not, and the two are easy to confuse.
How Working Capital Loan works in practice
Size the facility from the cash conversion cycle rather than from what a lender offers. If the cycle can be shortened instead, that is cheaper than any rate on offer.
Frequently asked questions
Enough to cover the cash gap between paying suppliers and collecting from customers, plus a modest buffer.
Related terms
OverdraftA credit limit on your current account you can dip into as needed.Working CapitalCurrent assets minus current liabilities — the cash cushion for operations.Cash Conversion CycleDays between paying for stock and collecting from customers.CollateralAn asset pledged to a lender as security for a loan.