How to Differentiate Between Working Capital Loan and Capital Loan
Starting a new business requires not only a lot of effort, patience and management skills, but it also requires a constant infusion of funds. When a business is being started, every step is crucial and this includes the choice of funding. As such, it is highly essential to conduct a thorough research before opting for a particular kind of funding.
There are mainly two types of business loans which are working capital loan and term loan. If you are confused between these two, then read out to find out the differences between the two -
A business loan that is borrowed from NBFCs (Non-Banking Financial Companies) is known as a term loan. These loans are back by assets and are for a long term that are usually sought for capital expenses such as business expansion or setup. Such loans are usually repaid back in a period of 1 to 5 years. If floating interest rate is chosen, then the interest rate will be higher because the interest rate changes with time.
On the other hand, if fixed interest rate is chosen, then the interest paid will be lesser in term loans when compared to working capital.
Working Capital Loans
There are many companies which do not have a stable revenue such as those which manufacture items that are sold on a seasonal basis. Such a loan is usually obtained to meet the short term working capital requirements which needs to be repaid back in a very short tenor.
Such loans are very helpful when it comes to paying bills and settling other pending accounts. As the repayment period is shorter, the interest rates are higher. Such loans are easily available and many also do not require collaterals for securing the loans.
Read Also: Difference Between Term Loan and Working Capital Loan?
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.