Which fits best for your business requirements: Term loan or working capital loan?

While India continues to grow as one of the fastest-growing economies across the globe, it owes this prowess to its strong business front. Considering that the nation holds on to its third position in the start-up section, multiple foreign investments have been made to boost this stride.

By 2018, the total venture capital investments touched US$ 20.5 billion that escalated the growth of start-ups. In yet another attempt to ensure their professional stride, multiple financial institutions offered their term loan and working capital loan.

These advances offer financial coverage that helps them meet their professional requirements. However, before availing a loan, one must take into consideration their professional financial requisite. It ensures that they make an informed choice and avail an advance that best caters to their requirements.

Entrepreneurs, based on their business’s financial requirements, can go with either term loans or working capital finance. While each of them offers its borrowers with convenient access to considerable funding, they each serve varying financial agenda.

Working capital loans

SMEs and MSMEs are often in requirement of financial assistance to cover their day-to-day expenses. Borrowers can easily enjoy this benefit by availing working capital finance and covering expenses involved in –

  • Procuring raw materials.
  • Maintaining a positive flow of cash.
  • Paying suppliers in advance.
  • Paying overhead costs like – salaries, electricity, rent, etc.
  • Purchasing inventory, etc.

Therefore, the advance availed via this loan acts as a cash cushion that equips entrepreneurs to leverage business opportunities. These working capital advances are primarily short-term business advances and hence, often have a short repayment tenor.

This kind of financial assistance is customised per the varying regular expenses of businesses. Lenders of such financial aid are comparatively lenient with the required eligibility criteria, and hence, availing such financial aid is convenient. All that one needs is hold a healthy credit history that reflects exceptional repayment capability.

Term loans

A term loan is aimed at entrepreneurs who require financial coverage for their capital expenditure, expansion of trading business, etc. They are tailor-made to suit the varying financial requirement of businesses and can be broadly classified into two types depending on their repayment tenor –

  • Short-term term loans
  • Long-term term loans

Such business loans from reputed financial institutions come with a host of lucrative features, viz. –

  1. High-value credit amount.
  2. Quick approval and disbursal of the sanctioned amount.
  3. Zero collateral required.
  4. Convenient online loan account access.

Therefore, thanks to multiple leading NBFCs, borrowers can choose from a wide variety of financial assistance. However, one must take into consideration a few factors before settling upon a loan –

  • Nature of the expenses
  • Repayment capability
  • Current financial liabilities
  • Offered rate of interest

Post considering these aspects, choose upon an advance – working capital or term loan that best suits the interest of your business.