diff --git a/.changeset/four-jeans-tap.md b/.changeset/four-jeans-tap.md
new file mode 100644
index 0000000000..e4508cfa18
--- /dev/null
+++ b/.changeset/four-jeans-tap.md
@@ -0,0 +1,5 @@
+---
+'@backstage/config-loader': patch
+---
+
+Resolve the path to app-config.yaml from the current working directory. This will allow use of `yarn link` or running the CLI in other directories and improve the experience for local backstage development.
diff --git a/packages/config-loader/src/lib/schema/collect.ts b/packages/config-loader/src/lib/schema/collect.ts
index 611413931e..e12a4c9309 100644
--- a/packages/config-loader/src/lib/schema/collect.ts
+++ b/packages/config-loader/src/lib/schema/collect.ts
@@ -124,7 +124,9 @@ export async function collectConfigSchemas(
     );
   }
 
-  await Promise.all(packageNames.map(name => processItem({ name })));
+  await Promise.all(
+    packageNames.map(name => processItem({ name, parentPath: currentDir })),
+  );
 
   const tsSchemas = compileTsSchemas(tsSchemaPaths);