Working capital loans: types, terms and how they work
Learn how working capital loans work, the main types for businesses and lending platforms, the terms that drive cost, and where stablecoin funding fits.
A working capital loan covers the time between paying for operations and getting paid by customers. This guide explains the main types, the terms that drive cost and how lending platforms fund the working capital loans they offer. It also covers where onchain credit fits.
Working capital is the cash a business needs to run while it waits to be paid. A distributor buys inventory months before it sells. A software company pays staff before annual contracts renew. A freight forwarder pays carriers and customs duties before its customers settle. A working capital loan covers that wait.
Types of working capital financing
| Type | How it works | Typical fit |
|---|---|---|
| Short-term loan | A lump sum repaid over months | A one-off need, such as a large order |
| Line of credit | Draw and repay up to a limit | Recurring, uneven needs |
| Receivables financing | Advances against unpaid invoices or card settlements | Businesses with predictable receivables |
| Inventory financing | Advances against stock on hand | Retailers, distributors and importers |
| Merchant cash advance | An advance repaid from a share of future sales | Merchants with steady card sales |
| Trade finance | Funding tied to a shipment or supplier invoice | Importers and exporters |
The Small Business Credit Survey from the Federal Reserve Banks tracks how often small firms apply for each type and how often they receive the full amount. The SBA also guarantees some working capital loans through partner lenders.
The terms that drive cost
The interest rate is only part of the cost. Businesses comparing offers should also check:
- Fees: origination, servicing and fees on unused capacity.
- Minimum draws: some facilities require a minimum outstanding balance, so the borrower pays interest on money it does not need.
- Draw mechanics: notice periods, funding days and whether draws are available outside banking hours.
- Covenants and limits: financial tests, eligibility criteria and caps on how much the lender will fund.
- Security: collateral, liens and personal guarantees.
When the borrower is a lender
Many working capital loans come from platforms rather than banks: payment companies, marketplaces, logistics providers and fintech lenders that offer financing to their own customers. These platforms usually fund their loan books with credit facilities from banks or private credit funds.
Those facilities shape what the platform can offer. A lender may cap its exposure, so a growing platform outgrows one facility and has to diligence and onboard another. Eligibility rules can exclude new loan products. See private credit for how these facilities typically work.
Where stablecoins fit
With stablecoins, a facility's draws and repayments can settle near-instantly, 24/7, including weekends when banks are closed. A platform can draw when it needs to fund loans and repay as its borrowers pay, and transfer memos can link each movement to a loan or invoice. Because repayments can land as soon as cash comes in, the borrower stops paying interest on money it no longer needs. Settlement speed does not set the price of credit. Rates and terms still depend on the lender, the structure and the risk.
FAQ
What is a working capital loan?
A working capital loan funds a business's day-to-day operations, such as payroll, inventory or supplier payments, rather than long-term assets. It usually has a shorter term than an equipment or real estate loan.
Is a working capital loan the same as a line of credit?
Not always. A working capital loan can be a lump sum repaid over a set term. A line of credit lets the business draw, repay and draw again up to a limit. Both can fund working capital.
Are working capital loans secured?
Some are and some are not. Many are backed by receivables, inventory or a general lien on business assets. Others are unsecured but require a personal guarantee. The agreement sets out what the lender can claim.
Explore credit on Tempo
Stablecoins let credit move like a payment: funded, drawn and repaid at any hour, with each transfer tied to its loan. If you offer working capital financing to your customers, get in touch to see how that works on Tempo.