Differences Between Term Loan and Working Capital Loan

Easy availability of finances to meet long or short term funding requirements of a business is essential for business growth and development. Among the multiple sources of finances, companies thus resort to availing loans and advances from the lending market in the form of business loans. Two such loans that business owners often resort to are term loan and advances for working capital.

While both of them help meet a business’s funding needs, the two are notably different in their meaning, scope, nature and such other basic parameters. As for term loans, these are specifically designed for the short, long or medium term. Businesses avail these loans to meet their requirement for capital investment in the long run. The reason may be investments involving large amounts like machinery purchase and installation, expansion of business, etc. In the case of working capital loans, businesses need these advances to meet any gap funds required to run business operations smoothly and to meet any shortage in cash flow.

Another point of difference between a working capital loan and term loans is that the two are available for varying tenor. The available loan amount for the two differs too. Also, businesses can avail working capital loans multiple times, which is not the case with term loans. These points of difference make the two loans suitable for their respective purposes, thus making it essential to choose an appropriate loan at the right time.

Additional Read: Here’s How Business Loan Fuel Your Business

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