What counts as working capital, and why does it run short?
Working capital is the cash tied up in running the business: inventory on shelves, invoices customers have not paid yet and expenses you cover before revenue arrives. Profitable, growing companies often run short precisely because growth ties up more cash in receivables and inventory before collections catch up.
Typical triggers for established companies:
- A large new customer pays on 60-day terms while your suppliers expect payment in 30.
- You win a contract that requires hiring and materials weeks before the first invoice.
- Your bank reduces or freezes a line that used to absorb these swings.
When is a line of credit the right working capital tool?
A line fits when the need goes up and comes back down. You draw to buy inventory or cover payroll, then repay as customers pay. Interest usually accrues only on what is drawn, so a line is often the most efficient way to handle cyclical gaps that repeat through the year.
A B2B company with steady receivables might keep a business line of credit sized to its largest expected gap and bring the balance down each time a big invoice clears. See how that works for B2B service companies with weekly payroll and slower-paying clients.
When does a term loan make more sense for working capital?
Use a term loan when the need is permanent. If sales grew and you now carry more inventory or receivables year-round, that cash will not come back out of the business. Putting it on a fixed monthly schedule keeps your line open for true swings and gives underwriters a clear repayment picture.
A simple test: if your line balance has not come close to zero in a year, part of that balance is probably permanent working capital. Moving that portion to a term loan can make line renewal easier. Our line vs term loan guide walks through the decision.
What do funders review for working capital requests?
Many funders look at time in business, monthly revenue, credit and cash flow, and for larger requests they review financial statements, tax returns and a debt schedule. For working capital specifically, underwriters also focus on receivables aging, customer concentration, inventory turnover and how quickly cash converts back from sales.
Be ready to explain the use of funds in a sentence or two, for example, carrying receivables for a new contract. Requirements vary by product and funder, and a clear story tied to your numbers usually speeds review.
What are the alternatives some owners compare?
Some owners compare invoice factoring, which sells receivables at a discount, and revenue-based financing, which is repaid from deposits. Both can be faster or easier to qualify for, but they usually cost more than a line or term loan for a strong-credit company and can reduce the cash you keep from each sale.
If you are weighing a faster option as a bridge while your full-doc file comes together, read our revenue-based financing page for the honest trade-offs first.
Frequently asked questions
How much working capital can an established company get?
Requirements and amounts vary by product and funder. Many look at time in business, monthly revenue, credit, existing debt and cash flow together. Lines are often sized from revenue and eligible receivables or inventory, while term loans are sized from the payment your cash flow can comfortably carry.
Can I have both a line of credit and a working capital term loan?
Yes, and many established companies do. The term loan carries the permanent portion on a fixed schedule, and the line handles seasonal or timing swings. Check that your existing agreements allow the second facility, and keep every funder updated on your financials.
Will a funder look at my customer concentration?
Usually. If one or two customers make up a large share of revenue or receivables, a slow payment from them affects your whole cash cycle. Funders may size the facility more conservatively in that case, so be prepared to describe those relationships and their payment history.
How fast can working capital be arranged?
Timing depends on the product and your documents. Some approvals come within a day or two, depending on documents, while larger full-doc lines and term loans can take longer. Having financial statements, tax returns and a receivables aging report ready is the best way to shorten the process.
Is working capital funding a good idea to cover losses?
Usually not. Borrowing to cover ongoing losses adds a payment without fixing the cause, and underwriters will see the trend in your financials. Working capital funding works best when the business is profitable and the gap comes from timing or growth rather than a shrinking margin.
Keep cash moving while you grow
Tell us where your cash gets tied up, and we will compare line and term options from our funding partners.
Updated September 14, 2026 · 1Prime Capital Funding Team