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Difference between a Working Capital and Business Term Loan

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What is the difference between a working capital loan and business term loan?

Before you choose the right source of capital for your business, it is imperative that you know the difference between business term loans and working capital loan adeptly.

Working Capital Loans:
• Working capital loans are primarily short-term business loans, and hence the repayment period for them is as low as 4 months.
• The amount of the loan is based on the cost of running the business, since such loans are customized in accordance with the regular expenses incurred to run a business.
• Such loans can be availed as many times a business might require, since the only criterion that might affect its sanction is timely repayment.

Business Term Loans:
• Business term loans are primarily for the long-term and can have a repayment tenor ranging from 1 to 5 years.
• Covers high-cost investments like business expansion, purchase of expensive plant and machinery, etc.

Another major difference between a business term loan and working capital loan is that while generally the former is unsecured, the latter is secured.

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