6 Differences Between Term Loans and Working Capital Loans

These days, banks and other financial institutions offer a wide array of loan products for customers to choose from. Personal Loan, Business Loan, Professional Loan, Education Loan, Loan Against Property, etc.- you name it and they have it. These offerings are further customised to suit individual customer needs.

And when we talk of business, the need for finance is a constant. Many small and medium business enterprises (SMEs) often find themselves in need of ready funds either to conduct or to expand their operations. For them, there are again various options to choose from, of which two popular ones are term loan and working capital loan.

What are term loans and working capital loans?

A common option among businesses in need of finance, term loans and working capital loans are products to cater to the funding needs of enterprises. A term loan is one where money is made available for a fixed duration, usually anywhere between 1 year to 10 years (or even more in some cases). A working capital loan is one that is taken by business owners to tide over any short-term financial needs or sudden cash crunch, and even to help them keep up their day-to-day operations. Working capital refers to the money or funds used to run daily business operations and associated expenses.

With HDFC Bank, our SME customers can avail of either Working Capital Finance or a Term Loan, as the need may be.

Differences between term loan and working capital loan

Duration: A working capital loan is usually taken to deal with immediate cash requirements or short-term needs. For long-term needs or extended durations, business owners generally opt for term loans. HDFC Bank offers Term Loans with tenures of up to 5 years.

Purpose: For things like business expansion plans, purchase of equipment /machinery or renovation of office premises, a term loan is the usual choice. Working capital loan, on the other hand, is opted for usually to tide over cash crunch and working capital needs.

Ease of getting loan: For those with good credit score, a working capital loan is easier to get than a term loan.

Repayment: Being a short-term funding options, a working capital loan has a very flexible repayment period/tenure. Meanwhile, term loans come with relatively longer repayment tenures.

Amount: Term loans involve bigger amounts, hence the extended repayment period. In case of working capital loans, the amounts are generally smaller than term loan limits, and are determined basis the business turnover.

Interest rates: Although working capital loans are fairly easier to secure, these come with high interest rates due to their shorter repayment tenures, while term loans have comparatively lower interest rates.

Know more about Working Capital Loan eligibility criteria here.

Looking to apply for a Working Capital Loan Click here to get started!​​​​​​​

*Terms and conditions apply. Business Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.