Financial constraints in developing countries limit short-term credit, affecting firms' ability to manage working capital. This study introduces a model that shows how firms adjust labor and capital in response to demand changes when facing constraints. Firms near the constraint boundary face limitations when positive opportunities arise, leading to constrained output growth in response to positive shocks. Simulations suggest that models without working capital may underestimate the impact of financial constraints on production efficiency and growth. Data from Bangladesh supports the theory, showing that constraints bind when prices increase, constrained firms invest countercyclically, and output response to positive shocks is dampened. Efforts to alleviate credit constraints should focus on high-demand periods to maximize growth.