Cash flow doesn't always follow the calendar. You might be waiting on a customer payment, preparing for a seasonal spike or trying to cover payroll during a slow stretch. Working capital loans close those gaps for businesses. In 2024, the working capital loan market was valued at $1.5 trillion, and it's forecast to reach $2.8 trillion by 2033.

Several types of working capital loans are available, and not all of them work the same way. The structure you choose – short-term loans, trade credit, or revenue-based advances – can shape your repayment flexibility, your cost of capital, and more.

Below, we'll cover the major types of working capital loans, how they work, and when it makes sense to use each one.

What's in this article?

• What is a working capital loan?
  
• How does a working capital loan work?
  
• What are the main types of working capital loans?
  

What is a working capital loan?

Working capital loans help cover the everyday expenses of running a business (e.g. rent, payroll, inventory, utilities) when cash is tight. They're not designed for large expenditures or long-term investments but rather to support the short-term needs of the business. Seasonal businesses use them to manage slow months, while others use these loans to cover gaps between paying vendors and getting paid by customers. Working capital loans typically involve:

• Shorter repayment periods (often a few months)
  
• Smaller loan amounts
  
• Faster funding because the goal is to solve immediate problems
  

The structure can vary. Some working capital loans come as lump sums you pay back in instalments. Others are revolving credit lines you draw from as needed. Some providers, such as Stripe Capital, offer business funding based on your sales activity, with repayments automatically deducted from your daily revenue.

The idea is simple: you get quick access to funds so your operations don't stall. When used well, a working capital loan can keep your business steady through a slow period or give you room to jump on a time-sensitive opportunity without skipping a beat.

How does a working capital loan work?

Working capital loans are built to solve a short-term mismatch between expenses and available cash. This can be caused by:

• A seasonal dip in sales
  
• Late customer payments
  
• An up-front cost that comes before the revenue it'll generate
  

The loan covers the cash gap so operations continue uninterrupted. You repay it with the revenue it helps you earn. Here's what to expect with a working capital loan:

Fast access to funds

These loans are designed to move quickly. Many online lenders offer approval in days, even hours. Stripe Capital can move faster by using your payment processing data to advise you of available offers, letting you apply with a few clicks.

Short repayment timelines

Repayment typically also moves fast, and some loans must be repaid in less than a year. Others might stretch to 24 months, but that's about the upper bound for working capital products. The repayment cadence is often fixed daily or weekly payments, deducted automatically from your business account, or a percentage of daily sales, which scales with your revenue. That second structure (which is used by Stripe and some revenue-based lenders) can help ease the repayment burden when cash flow is uneven.

Different approval criteria

Most working capital loans are unsecured, meaning they don't require a specific asset (such as a building or vehicle) as collateral. But that doesn't mean lenders don't care about risk. Approval often hinges on:

• Business cash flow
  
• Revenue consistency
  
• Your personal credit score (especially for newer businesses)
  
• Occasionally, a general lien on assets or a personal guarantee
  

Some lenders will also consider business history, average transaction volume, or outstanding liabilities. If you're applying through a platform such as Stripe that already sees your payment data, that underwriting happens in the background, which can lead to faster, better-suited offers.

What are the main types of working capital loans?

There are several different types of working capital loans. The right option depends on how quickly you need funds, how you plan to repay and what kind of assets or cash flow your business has.

Short-term business loans

With a short-term loan, you receive a lump sum up front and repay it on a set schedule, typically weekly or monthly, over a fixed term (often between 3 and 18 months). Approval for these loans is often faster than for traditional term loans, especially through online lenders, which means you can act quickly when timing matters.

These loans are ideal when you know exactly how much funding you need and exactly when you'll be able to pay it back. It's a good option if you're making a one-time investment with a clear payoff – inventory buys, equipment upgrades, or seasonal marketing campaigns, for example. Interest and fees can add up, especially if repayment is daily or weekly, so it works best when the return on the investment is predictable and near term.

Business lines of credit

With a business line of credit, you're approved for a borrowing limit and draw funds as needed. You pay interest only on what you use, and as you repay, the credit becomes available again. Some lines of credit have draw fees or maintenance costs, so check the terms.

This flexibility makes lines of credit especially useful for managing unpredictable cash flow or seasonal swings or covering recurring, variable expenses. You often need decent credit and a financial track record to qualify.

Invoice financing

Invoice financing lets you borrow against your unpaid invoices. A lender advances a percentage of the invoice value up front, while you retain ownership of the invoices and collect from customers yourself. You repay once your customer pays, plus fees or interest.

This financing is useful when clients are slow to pay but otherwise reliable. It can be a good option if unpaid invoices are slowing you down.
https://stripe.com/resources/more/marketing-tactics-for-startupshttps://stripe.com/resources/more/small-business-startup-capital-101-how-to-fund-your-early-days#invoice-or-equipment-financingInvoice factoringhttps://stripe.com/resources/more/how-to-handle-unpaid-invoices
With factoring, businesses sell invoices to a third party (a factor) at a discount. The factor collects from your customers. As with invoice financing, this converts unpaid work into usable capital, which is especially valuable for B2B businesses with long payment terms.

This setup gets you cash fast, but you give up control over collections. Customers will know you're working with a factoring firm, which can damage some customer relationships. Fees for this type of loan are also typically higher than invoice financing.

Merchant cash advance (MCA)

You receive an advance in exchange for a slice of your future sales. Repayment is automated as a fixed percentage of daily revenue or fixed daily debits. Approval is based on your sales performance, not your credit score. Stripe Capital offers a version of this, in which eligible users get funding offers based in part on their Stripe payment volume, with automatic repayment through a set percentage of future transactions. Approvals are fast, and funds can arrive in a day or two.

MCAs are a good option if your credit is limited and you need cash immediately. These advances can be the fastest route to liquidity for businesses that don't have time or the credit for traditional loans. But factor rates are high, and the true cost can rival or exceed that of credit cards. This type of credit is easy to overuse, so it's best used as a short-term solution.

Business credit cards and overdrafts

You can access these revolving credit tools to cover smaller, everyday needs. Credit cards offer flexibility and sometimes rewards or grace periods. Overdrafts let your business checking account dip below zero up to a set limit.

These aren't loans in the traditional sense, but they're often the first line of defence for cash gaps. They're best used for short-term, low-volume funding.

Trade credit

With trade credit, your vendors give you 30, 60 or 90 days to pay for goods or services. There's no interest if you pay on time, which makes it effectively free working capital. Trade credit frees up cash while you generate revenue from what you purchased.

This is a good option if you're already working with suppliers or platforms. Trade credit is particularly valuable if you turn over inventory fast and can repay before payment is due. It's often overlooked, but it's one of the most valuable tools small businesses have. You're tapping into relationships and tools you already use rather than layering on external financing with more strict underwriting.