Working capital funds the gap between paying for work and getting paid for it. It is recurring, it scales with revenue, and it should be financed with a revolving structure that expands and contracts with the business.
Growth capital funds a step change — a new location, a new line, a team built ahead of the revenue it will produce. It is finite, it has a defined payback, and it belongs in a term structure matched to that payback.
Why the mismatch happens
Term debt is often easier to obtain than a properly sized revolver, so owners fund a permanent working-capital need with a fixed-payment loan. Each renewal adds another payment layered onto the same underlying gap.
The reverse also happens. A revolver funds an expansion, the line stays drawn, and what was meant to be flexible liquidity becomes permanently unavailable.
A practical test
Ask whether the need repeats. If the business will face it again next quarter at a similar size, it is working capital. If it happens once and produces an asset or a capability, it is growth capital.
Structure follows that answer. Product should not lead it.