A working capital loan is a type of short-term business loan that is used 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 loans are often tied to a business owners personal credit, so missed payments or defaults may hurt their credit score. Companies with high seasonality or cyclical sales may rely on working capital loans to help with periods of reduced business activity.

Key takeaways about working capital loans include:

• Working capital loans are not used to buy long-term assets or investments; they are used to provide working capital to cover a companys short-term operational needs.
• Working capital loans are a type of short-term business loan designed to help businesses cover their regular operating expenses.
• Working capital loans are almost always secured, meaning the lender may "demand" repayment at any time.
• 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.
• Working capital loans give business owners quick access to cash that they can use for day-to-day expenses.
• Working capital loans typically have short repayment terms and frequent payments.

If a company does not have adequate cash on hand or asset liquidity to cover day-to-day operational expenses, they may secure a working capital loan. Working capital loans can offer an immediate influx of cash to help a company cover expenses during an emergency or downturn in business.