As a business owner, you likely know what it feels like to have tight finances: timing out payments to suppliers, closely monitoring receivables, and hoping cash comes in before a payment is due. But it’s a different challenge to build enough of a buffer for your company to both sustain itself and grow. That’s the role of long-term working capital—it’s what gives you room beyond staying afloat and allows you to make smart, level-headed decisions about how to use your money.

Below, you’ll find a practical look at how long-term working capital works, why it matters, and how to manage it well.

What’s in this article?

• What is long-term working capital?
  
• How is long-term working capital different from short-term working capital?
  
• How does long-term working capital support business strategy?
  
• How do you calculate long-term working capital?
  
• What are common sources of long-term working capital?
  
• What are the challenges in managing long-term working capital?
  
• How Stripe Capital can help
  

What is long-term working capital?

Long-term working capital is the baseline amount of money a business needs to keep running over the long term. It’s the minimum cash you always need in the bank, the inventory you always have on the shelf, and the receivables you’re always waiting to collect.

It’s often called “permanent” working capital for these reasons, and it’s what you rely on to stay in business and support long-term growth. This type of capital keeps operations steady, provides a cushion in case of surprise expenses, and gives you the financial breathing room to think longer term.

How is long-term working capital different from short-term working capital?

Long-term working capital and short-term working capital both fund operations, but they work on different timelines, solve different problems, and come from different sources.

Short-term working capital:

• Covers immediate needs, such as paying suppliers, handling payroll, and managing day-to-day cash flow
  
• Fluctuates with seasonality, demand spikes, or operational mishaps
  
• Is funded with short-term tools such as lines of credit or short-term loans
  
• Can be managed by speeding up collections, stretching payables, and optimizing inventory
  

Long-term working capital:

• Supports big-picture moves, such as expansion, product development, and long sales cycles
  
• Acts as a financial buffer that helps you stay stable during downturns or delays
  
• Is funded with longer-term sources such as retained earnings, equity, or multiyear loans
  

To be successful, you need both types of capital—one keeps things moving, while the other allows you to build a business to last.

How does long-term working capital support business strategy?

Long-term working capital gives you the financial stability to act on long-term plans. When you have enough capital, you can focus on building, rather than just staying afloat. Let’s look at how it impacts strategic decision-making.

Funding growth initiatives

Whether you’re developing a product, entering a new market, or scaling operations, you need up-front capital. Long-term working capital gives you the runway to invest today without jeopardizing tomorrow’s operations.

Building in resilience

Markets wobble, customers delay payments, and equipment breaks. Having a strong working capital position means you don’t have to derail your long-term strategy to cope with short-term shocks. It keeps you from scrambling when something unexpected hits.

Allowing you to make better decisions

Without constant liquidity pressure, you can time big moves to your advantage. You can launch when the market’s right, negotiate from a position of strength, or invest in building loyalty with a high-value client. When you’re concerned about liquidity, you’re often forced to make reactive, short-term tradeoffs.

Supporting long-horizon bets

Some strategies take time to mature, including research and development (R&D), infrastructure, or brand investments. You can’t commit to those long-lead projects without solid capital. Long-term working capital makes it possible to follow through on ideas that take years to show returns.

Avoiding the refinancing treadmill

If you’re covering permanent needs with short-term debt, you’ll likely need to refinance over and over. That strategy is distracting at best and risky at worst. When you match long-term capital with your long-term needs, you’re building something that can hold.

How do you calculate long-term working capital?

The basic working capital formula is:

Working Capital = Current Assets – Current Liabilities

That tells you how much liquidity you have to cover short-term obligations. But if you want to know how much of your working capital is funded by long-term sources—the kind that won’t vanish in a quarter—you’ll want a different lens.

Use this formula to calculate long-term working capital:

Long-term Working Capital = Noncurrent Assets – Noncurrent Liabilities

This formula offers a view of your capital structure. If your long-term assets (such as property or equipment) are fully covered by long-term liabilities (such as multiyear loans), any additional funding flows into working capital. In other words, it tells you how much of your working capital is backed by stable, long-term money, and not short-term debt or quirks of timing. This calculation helps ensure you’re funding permanent needs, such as inventory or receivables, with capital that’s not due anytime soon.

Not every company runs this calculation explicitly, but smart operators know what their baseline working capital needs are to make sure they’re covered.

What are common sources of long-term working capital?

Long-term working capital requires long-term funding. That means money that doesn’t have to be repaid next quarter won’t evaporate if revenue dips, and it can support the business as it scales. These are the main sources for this funding.

Retained earnings

The most sustainable source of long-term working capital is your own profit. Reinvesting earnings back into the business builds your equity base and strengthens working capital without taking on new obligations. Over time, this compounds into a reliable foundation for growth and stability.

Equity capital

Raising outside investment through private investors or public markets brings in cash without adding debt. Equity is patient capital—it’s especially common for startups or companies with long payback periods. The tradeoff is dilution, but you benefit from the flexibility.

Long-term debt

Term loans or bonds with multiyear repayment schedules are a staple for funding permanent working capital needs. They boost current assets without creating current liabilities, which improves working capital on paper and in practice.

Trade credit and accruals

Not all working capital has to come from loans or equity. If your vendors offer you 60-day terms, for instance, that’s essentially short-term financing you can rely on consistently. As your business grows, so does your access to this kind of informal capital that’s built into the rhythm of your operations.

What are the challenges in managing long-term working capital?

Planning for long-term working capital sounds straightforward: you figure out how much of your operating capital needs to be permanent and fund it with money that’s not going to vanish next quarter. But in reality, you’re making decisions with imperfect information amid conditions that are always changing, all while coordinating across different parts of the business. Here’s where it can get tricky.

Accessing capital

Banks might not be eager to hand out multiyear loans to small businesses or entities without long credit histories. Investors typically want to see traction before they write a check, and most government-backed programs involve paperwork that can drag on for months.

Planning for the unexpected

You can build the cleanest financial model in the world, but it still won’t predict when a supplier will go under, shipping costs will double, or your best client will delay their rollout by six months. Long-term working capital planning depends on long-term projections, and your projections are not assured. The challenge is planning with enough realism and built-in leeway to absorb any issues without ruining your budget.

Figuring out how much working capital to hold

If you don’t have enough working capital, you’re constantly on edge: juggling payments, delaying orders, and fielding credit calls. But if you hold too much, you’re tying up cash that could be used more productively. Figuring out where that line is isn’t easy. It changes as the business grows, and it depends on your margins, payment cycles, and industry norms.

Mismatching funding and use

A common mistake is using short-term money, such as a line of credit or a short-term loan, to fund long-term needs. Maybe you used a credit line to buy equipment or bulk inventory, and now you’re stuck renewing that credit every few months while the returns on your investment could take years to materialize. That mismatch creates a refinancing risk. If credit tightens or your financials dip, you might not get to roll it over.

Responding to external changes

Interest rates go up, credit markets tighten, supply chains get jammed, and customer behavior shifts. Any of these shifts can raise your working capital needs overnight. When that happens, whatever cushion you thought you had might not be enough. Even if you’ve done everything “right,” the market can change the rules on you midgame. The best you can do is build in flexibility, secure your funding early, and avoid relying too heavily on any single source.

Keeping different teams on the same page

Working capital exists across teams. Sales sets payment terms, operations manages inventory, and finance handles the cash. If those parts aren’t working together, working capital management can get fragmented fast. It’s often a communication issue, and fixing it requires buy-in across the business.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance (MCA) in minutes—without the lengthy application process and collateral requirements of traditional bank loans.
  
• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.
  
• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.
  
• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.
  

Learn more about how Stripe Capital can fuel your business growth, or get started today.