Term Loan Vs Working Capital Loan:

External funding is a key requirement in businesses. Every organisation, both big and small, depends on different credit sources to survive and grow. It can be to finance the daily activities of an organisation, like paying rent or restocking of supplies. Or, a company may require a loan to undertake business expansion.

Either way, debts act as a convenient instrument for businesses owing to the cost-profit dynamics. Nevertheless, in regards to a business’s funding requirements, two broad options govern the landscape, i.e., working capital loans and term loans. Thus, when running a business, it’s essential to familiarise yourself with the differences between working capital loan and term loan so that you can make a sound decision.

What is a Working Capital Loan?

Working capital, which is the difference between current assets and current liabilities, is the financial backbone of an organisation.

Proper working capital management allows a business to settle its short-term obligations with considerable ease, thus allowing business growth. Hence,any deficit in it can lead to operational hindrance and affect growth.

A working capital loan addresses the short-term financial requirements of a business. With this credit facility at a business’s disposal, it can handle short-term liabilities without any hassle and also upscale its operations.

Working capital funding options come with a small loan amount, which is a significant point of difference in working capital loan vs term loan. Also, since they are designed to meet short-term obligations of a business, the repayment tenure is short and usually extends up to a year.

One of the working capital options that businesses regularly avail is invoice discounting. The facility allows companies to leverage unpaid invoices from debtors to secure cash advance from a financial institution.

KredX’s invoice discounting platform allows you to avail funds against your business’s unsettled bills within 24 – 72 hours*. To get started, you only need to upload the approved invoices to our online portal.

What is a Term Loan?

A business also needs to focus on investment in long-term assets, expansion, etc. A term loan conveniently facilitates these long-term objectives of an organisation.

One of the more significant differences between working capital loan and term loan is that the latter comes with extended repayment tenure. Most financial institutions in India offer repayment tenures on business term loans ranging from 1 year to 5 years.

Organisations can avail considerable amounts as funding with term loan facilities. These loans are thus more suitable for the substantial obligations of a business, like new machinery purchase and capital infusion into expansion projects.

Businesses also need to pay considerable interest with their term loans since the tenure for repayment is long.

What Are The Differences Between Working Capital Loan And Term Loan?

These two external funding facilities differ on the following bases:

Points of Difference

Working Capital Loans

Term Loans

  • Repayment Tenure

Working capital loans come with a shorter maturity period, usually not more than 12 months.

Borrowers of business term loans can repay across the tenure of 12 months to 60 months.

  • Loan Amount

When considering working capital credit options, the amount a borrower can avail is generally smaller.  

The loan amount is considerably high in the case of business term loans.

  • Purpose

Businesses choose to go with working capital loan options to mitigate operational expenses.

Organisations opt for a term loan to address their long-term business goals and objectives, which ultimately leads to their value addition.

  • Eligibility Criteria

With working capital loan options, the requirements to qualify are less rigid.

Borrowers require satisfying stringent eligibility criteria in order to access term credit.

With KredX, you can avail cash advance by utilising your business’s unpaid invoices with minimum eligibility criteria and simple documentation process.

Sign Up Now to Check your Eligibility for Bill Discounting Services

    These are the primary differences between working capital loan and term loan. Details of such credit options may vary from one financial institution to another. Thus, when availing any loan option, you may want to read through the details to maximise your benefits thoroughly.


    No, collateralising an asset is not necessary to access working capital credit options such as invoice discounting services.

    Yes, you can write off the interest on a term loan as a business expense. It helps avail tax benefits for the business.

    No, working capital loan options are unsecured. So, you do not need a guarantor to avail them.

    Lending institutions may take as long as 60 days to disburse a business term loan. KredX offers invoice discounting services within 24 – 72 hours*.