what is a working capital loan

A working capital loan is a type of loan that is taken to finance a companys everyday operations. These loans are not used to buy long-term assets or investments, but instead, they are used to provide the working capital that covers a companys short-term operational needs. Working capital is the money a business uses to cover its daily expenses like utilities, supplies, payroll, and rent. Companies with high seasonality or cyclical sales may rely on working capital loans to help with periods of reduced business activity. Working capital loans are often tied to a business owners personal credit, so missed payments or defaults can negatively impact the owners credit score. There are many types of working capital loans, including term loans, lines of credit, business credit cards, invoice financing, merchant cash advances, and SBA loans. The repayment plan and timeline will vary depending on the loan type, and some lenders may require daily or weekly payments from credit card sales or direct payments from the business checking account.