What is working capital financing?

Working capital financing provides funds to cover a business's short-term operational needs — payroll, rent, inventory, utilities, and other day-to-day expenses. It is intended to bridge temporary gaps between cash inflows and outflows, not to fund long-term assets. Common working capital financing options include business lines of credit, short-term loans, invoice factoring, and business credit cards. Seasonal businesses often rely on working capital financing to stock inventory before peak seasons. The working capital ratio (current assets divided by current liabilities) should generally be above 1.2 to demonstrate sufficient liquidity. Negative working capital can signal financial distress.