Working capital is the money a business uses to cover its daily expenses like utilities, supplies, payroll, and rent. A working capital loan offers your business a way to temporarily pay for these expenses when a business is experiencing a temporary cash-flow drought. 

​

What Are Working Capital Loans?

As mentioned, a working capital loan is a type of business loan that can help when your company finds itself in a tight financial spot for whatever reason. This form of business funding isn’t used for long-term investments but rather is reserved for short-term financial goals. 

​

Cash flow issues can be incredibly stressful and very discouraging for any small business owner. Research revealed that as much as 26% of small businesses considered closing their doors within the first year because of cash flow issues, not because they were unprofitable. 

 

Working capital loans can offer an immediate influx of cash to help your company cover expenses during an emergency or downturn in business. These short-term loans won’t keep you afloat forever of course, but it can keep the business operating normally until you’re able to find a more permanent solution to solve your business’ cash flow problems. 

​

Because working capital is generally used for your business’ daily expenses, loans designed to help cover these costs will typically have shorter payback terms. Often these short-term loans, sometimes called cash flow loans, have to be repaid to the lender within one year or less. They’re generally not meant to cover long-term investments like real estate or pricey equipment purchases. Still, it is possible that some business owners occasionally may use a short-term business loan for these purposes. 

​

​