Business Term Loan And Working Capital Loan: What’s the Difference?

Business term loan and the working capital are the two different term for business loan. Read to understand the difference between them.

2 Nov,2022 17:23 IST 31 Views
Business Term Loan And Working Capital Loan: What’s the Difference?

Every business needs capital to ensure the smooth running of its day-to-day activities. However, it depends on when you need to take the loan. It may be for the long term to ensure the business sustains, or it could be short-term to ensure the company successfully navigates through a cash crunch.

What Are Term-Loans And Working Capital Loans?

A business term loan provides capital to the business owner for the long term, usually anywhere for a tenure between 1-10 years. These types of loans are taken by business owners when they want a high amount of capital to expand their business into new territories or business segments.

A working capital loan is a short-term financing product business owners take to fulfil their short-term capital requirements. These loans have a tenure of several months, and a business owner can use the loan amount to cover expenses related to the business's day-to-day operations.

Business Term Loan And Working Capital Loan: What’s the Difference?

Numerous differences between a term loan and a working capital loan may influence your business operations. Here are the distinctions between a term loan and a working capital loan:


A term loan generally covers massive expenses such as buying machinery and office equipment, renovating office premises, buying real estate or opening a new office. On the other hand, the primary purpose of taking a working capital loan is to have positive cash flow during a cash crunch to cover day-to-day expenses.


Term loans generally have a tenure of 1-10 years or more to ensure effective repayment of the high capital amount. A working capital loan is a short-term financing product with a loan tenure of several months as the loan amount is lower.


Business owners opt for term loans when they want to raise a higher capital amount. A working capital loan offers a smaller amount ideal for short-term business expenses.


Term loans are long-term financing options with repayment options that stretch over a long period. On the other hand, a working capital loan's repayment period/tenure is relatively flexible as it is a short-term financing option.

NBFCs and banks have designed several loan products for budding entrepreneurs to ensure they can fulfill short-term or long-term capital requirements. Therefore, based on the above factors, you can choose a loan suitable to your needs.


Q.1: Which is better? Term Loan or a Working Capital Loan?
Ans: Both loan products are ideal depending on the purpose or the period. Term loans are long-term financing products, while working capital loans are short-term financing products.

Q.2: What are the repayment modes available?
Ans: The loan repayment structure is flexible and offers multiple repayment modes, including standing instructions, NEFT Mandate, ECS, Net-banking, UPI, etc.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

Most Read

Franking and Stamping: What’s the difference?
14 Aug,2017 03:45 IST
Like 3761 3761 Likes
Difference Between 24 Karat and 22 Karat Gold
8 Dec,2022 09:26 IST
Like 1086 1086 Likes
Personal Loan With Low CIBIL Score
21 Jun,2022 09:38 IST
Like 1479 1479 Likes
Why Gold Is Cheaper In Kerala?
14 Jan,2023 09:35 IST
Like 834 1802 Likes

Get in Touch