# Working capital

> Working capital is the cash a business uses to cover day-to-day operations — payroll, inventory, rent, utilities. Calculated as current assets minus current liabilities. Most MCA + LOC products are positioned as working-capital financing.

Working capital is the operational cash a business needs to keep running between revenue cycles. It's the lifeblood of cash-intensive businesses like restaurants, retail, and trucking where revenue arrives daily/weekly but expenses (payroll, inventory, lease) are due on fixed schedules.

**The standard formula.** Working capital = Current Assets - Current Liabilities. Current assets include cash, accounts receivable, inventory. Current liabilities include accounts payable, short-term debt, accrued expenses.

**Why merchants need working capital financing.**
- Revenue timing gaps: pay suppliers Net 30 but customers pay over 30-90 days.
- Inventory pre-buying: bulk discount on $50K of inventory before holiday season.
- Payroll bridging: cover staff while waiting on contract receivables.
- Equipment repair: unexpected fix that can't wait for cash flow.
- Marketing pushes: front-load ad spend before peak season.

**Working-capital financing products ranked by cost.**
1. **Bank LOC** — APR 6-15%, hardest to qualify (680+ credit, 24+ months, financials).
2. **SBA 7(a) working capital tranche** — APR prime + 2.75-4.75%, 30-90 day approval.
3. **Online LOC** (Bluevine, Fundbox) — APR 8-30%, 625-650+ credit.
4. **MCA working capital** — factor 1.15-1.45, equates to 30-90% effective APR, 500+ credit.
5. **High-cost specialty MCA** — factor 1.35-1.55+ for C-paper merchants.

**The strategic insight.** Working-capital needs should drive the cheapest financing option you can qualify for. Don't take MCA for working capital if SBA or LOC would qualify — the cost differential typically saves $20K-$100K per $250K borrowed over a 5-year horizon.

## Related terms

- [Factor rate](https://fundnode.co/llms/glossary/factor-rate) — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.

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Source: https://fundnode.co/glossary/working-capital (HTML version)
Document: Working capital — Fundnode MCA Glossary
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