We are going to point out some key differences Between Working Capital Loan and Term Loan. When we talk about business, there are some things that are required to start a business. For this, you must have a good financial status. The more you have wealth status, the more you’ll invest in the business. But sometimes, a businessman doesn’t have that status to build it. So, he needs some money to start his business. In this case, he has the option to start his business by taking a loan. This business loan may be of two types i.e. Working Capital Loan or Term Loan. The loans taken for a small time period are called Working Capital Loans. They provide a specific amount to the borrower and he has to repay this amount within a limited time (maybe less than 1 year). On the other hand, the loan taken for a long period is termed as Term Loan. These loans are taken by those, who want to invest a lot in their business. This was a small intro about these loans, have look down for more key points:
Working Capital Loan
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For a short time period, this loan is taken. In this type of loan, a borrower takes a specific loan and he has to return this loan within a short time period. The time period for this loan may be less than 8 to 9 months (depending upon the contract between the company and the borrower). The amount of this loan depends upon the amount required to start that business. So if a person wants to start his business with low financial states and he wants to take a short loan, then we advised him to take this loan. A company can give more than one loan to a person if he repays the loan within a limited time.
Term Loan
This is simply opposite to Working Capital Loans. In this type, a person can take a loan for a long period of time. The time period to repay this loan might range from 1 to 5 years or maybe more (depending upon the amount of the loan). The amount of this loan is very huge which is usually taken to start or invest in very big business. So, those who want to invest much in business and have a very big business can take this loan.
Differences Between Working Capital Loan and Term Loan
Working Capital Loan |
Term Loan |
| Loans are taken for a short time period. | These are taken for a long time period. |
| In this loan, the company gives a small amount. | In this loan, the company gives a large amount. |
| The time period is not more than 10 months. | The time period may range from 1 year to more than 5 years. |
| Taken to invest in a small business. | Taken to invest in big business. |
| The interest of this loan is high. | The interest of this type of loan increases with the extent of time. |
| This loan is very easy to take. | This loan is very difficult to take. |