What Is an Operating Loan

What is an Operating Loan

Operating loans are used for financing day-to-day operations in a business that may not have the liquidity to fund short-term activities. Many companies cannot support short-term activities because they have seasonal or cyclical businesses wherein their profit is consolidated into a specific time frame. When these businesses are off-season, yields may be too low to operate as usual and maintain their business. Operating loans are also known as working capital loans and are often amassed in the agricultural industry. However, many other companies also benefit from the perks of an operating loan. Learn more about operating loans and find out if working capital is what your business needs to reach its full potential.

Operating Loans Provide Options 

Operating or working capital loans are also referred to as both harvest and demand loans. Referring to an operating loan as a harvest loan encapsulates the nature of the borrowing; farmers borrow at planting time when working capital is low and repay during harvest when they can sell their goods and make a profit. Businesses with unique seasonality or cyclical sales also rely on operating loans to keep the doors open during predicted downtimes in the industry.

Calling an operating loan a demand loan references the risky nature of taking a working capital loan. At the same time, there are clear terms that must be agreed upon; essentially, the lender may still demand repayment at any time. Your non-liquid assets remain in the balance until the loan terms are satisfied. These kinds of loans are typically tied to both business and personal credit. As a result, a late or missed payment will damage the credit of you and your business. Read the terms carefully to avoid lost assets and credit points.

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Operating Loans Provide Security for All Businesses

Operating loans are ideal for businesses that need capital for the in-between times. Some companies are unable to use a year-round schedule to make profits. Innovative business owners have found a way to make money in the interim, while dual operating options may not be possible for other businesses. Operating loans provide the funds to pay the bills, invoices, employees, and utilities until it is time to do business again.

Even though some businesses offer dual services, they often require capital to start their alternate ventures. Operating loans can keep the initial business going while financing can support their bridge venture. Bridge ventures might help provide marginal support until a company is stable and well-funded by proper management and planning. Some examples of common businesses that bridge the cyclical gap of their own volition include:

  • Pool installation and holiday lights
  • Christmas tree farms and orchards
  • Seasonal crop rotation
  • Ornaments for all seasons and celebrations
  • Swimwear and lingerie
  • Lawn care and snow removal services
  • Swim lessons and tennis lessons
working capital loans

Operating Loans Provide Capital for Businesses

No matter the diligent effort of business owners, there may still be a gap in funding during a predicted downturn in business. Farmers with seasonal crops always have small breaks in between harvests. There is time after holiday light installation wherein the ground is still frozen, and no pools can be installed yet. During these times, operating loans are practical to keep the doors open. Capital loans can be an accurately planned business expenditure that follows a predictable cycle each year. 

Operating Loans Provide Production Financing for Farming

Farming is a lucrative business but one with many risks. Farming also requires a significant amount of cash output before making any profit. Ideally, farms would eventually be self-sufficient, save for natural disasters or catastrophic events, and be able to stay afloat after a few years of supportive funding. Like any other seasonal and cyclical business, farming also has a predictable downtime during which borrowed capital must shield operations until income returns.

Farm Operating Loan Types

Farms are eligible for different financing just like any other business. Many farmers take advantage of federal agricultural funding through the United States government. However, if a farm applies for and is approved for an operating loan, two different types are typically issued.


A revolving farm operating loan continues in a cycle or revolves around cycles of borrowing and payment that coincide with the ebb and flow of production and revenue. In a revolving agreement, farmers borrow an amount and then repay it after producing and selling their commodity for a profit. Ideally, operation loans will not last for more than a few years as a business comes into its stride and can retain profit and plan accordingly during predictable off-seasons.


A non-revolving farm operating loan is a one-and-done borrowing agreement. This loan is typically used for hardships or unpredictable mishaps in cyclical businesses, such as natural disasters. In a non-revolving loan agreement, farmers borrow a one-time amount, and the loan is no longer available after the terms are satisfied. 

operating loan

Farm Operating Loan Terms

Operating loans are working capital loans designed for short-term use while a business is in a downward profit cycle. The off-season, as it were, should be predictable. Operating loans are best applied to companies that can predict their need for bridge loans and use them wisely. If applied unwisely, borrowers should know that there will be a significant amount of security interest in collateral as part of the loan borrowing terms. 

Farm Operating Loan Uses 

Like all operating loans, farm-specific ones are also used for day-to-day operations and necessary working capital. Farmers generally use the working capital to fund:

  • Start-up foundations
  • Crop production
  • Livestock purchases
  • Operating expenses
  • Operation diversification
  • Agritourism activity
  • Equipment repair
  • Improvement planning

To find out more about funding your day-to-day business operations during those in-between times, contact Platform Funding today. Our professional financial experts are standing by to make the application process quick, easy, and possible for all business owners.