Difference between term loan and working capital loan
Answers
Answer:
A term loan usually has a larger principal as it is used for the purchase of long-term assets.A Working Capital Loan is capped much lower than a term loan. Working capital loans (often called short-term loans) are used to increase working capital for a business. ... They are for a set amount repaid over a set term.
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.
Explanation:
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