After determining the level of working capital, a firm has to decide how it is to be financed. The need for financing arises mainly because the investment in working capital/current assets - that is, raw materials, work/stock-in-process, finished goods and receivables - typically fluctuates during the year.

Although long-term loans partly finance current assets and provide the margin money for working capital, such assets/working capital is virtually exclusively supported by short-term sources. When talking about small business loans, it is necessary to understand the term