A lot of funds are required to operate SMEs ie small and medium scale industries. But, indeed, many arrangements have also been made to provide money to SME traders. It can be also said that money is provided in many varied ways for small scale industries.
Some SMEs use business loans and some businesses use term loans to expand their industry. Many times it happens that people understand the term loan and business loan as the same.
Let us tell you that there is a difference between a business loan and a term loan in this blog:
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What is a Term Loan?
It can also be called a short-term loan. A loan taken or given to meet the needs of the business and to grow the business is called a term loan. Generally, term loans are offered for up to 5 years. For this reason, term loans fulfill the different needs of the business.
Term loan helps the entrepreneurs to grow their business. Term loans are taken and given for a fixed time, at a fixed interest rate. A term loan is of two types. The first one is a short term loan and the second one is a long term loan.
Loan given for 4 to 5 years are called short term loan, whereas Loan that is given for 14 to 15 years is called a long term loan. As the business owner has more time to repay the loan, the monthly EMI of the loan is less, and as a result, the business owner does not face difficulty in paying the monthly EMI.
The present time is the era of technology. Today, technology has become highly advanced due to which the process of providing loans has become much easier. The SME sector is getting the most benefit due to the fast processing of loans.
Small and medium industries are always in urgent need of money. In this situation, a Term loan is available in less time and fewer documents, providing relief by catering to the requirement of business owners quickly.
Short-term loans, ie term loans are taken by small and medium businesses. The time taken to repay the loan is between 12 and 24 months. Short term loans make it much easier to manage working capital.
Read More: What is the PMEGP Scheme & How to Get It?
What is a Working Capital Loan?
Before understanding the working capital loan, first, we have to understand what is working capital?
The amount spent on the daily needs of the business is called Working Capital. Working capital is the amount by which a firm’s ability and short-term finance are understood. Simply put, the difference between current assets and current debt is called working capital.
Continuous cash flow is required to manage the day to day operational expenses.
Sometimes it happens that the trader, does not receive payments on time from the customers, and as he/she is short on funds it becomes difficult for him/her to manage the cash flow required for the day-to-day operations.
So in this case, the best option to get out of this situation is to take a working capital loan.
Difference Between a Term Loan and Working Capital Loan
As you read above what is a term loan and a working capital loan, If we talk about the difference between a term loan and a working capital loan, it can be explained in simple terms that a loan taken
to increase the business is called a term loan and a loan given to meet the daily needs of the business is called a working capital loan.
Read More: Advantage and Disadvantage of Taking A Business Loan
What is The Line of Credit?
In simple language, it is a credit card of merchants, a line of credit is a type of fund from which loans are generally given to businessmen, companies, or government institutions. These loans are given by banks or financial institutions. Line of credit is a kind of term loan available for special activities only.
The line of credit allows industries to import-export the product for their business and to establish and grow their industry in other regions and other countries.
This type of credit is not available only to one institution but many institutions can use it to the extent of the limit that has been allotted to them.
Get Business Loan from ZipLoan in Just 3 Days*
‘ZipLoan’ is the leading NBFC ie. non-banking financial company in the fintech sector. ‘ZipLoan’ company offers micro, small, and medium businesses a business loan ranging from 1 to 7.5 lakhs in just 3 days* on very short terms to increase business.
There are very few terms to get a business loan from ZipLoan
- The business should be at least 2 years old.
- The annual turnover of the business should be at least more than 10 lakhs.
- ITR filed last year should be Rs 1.5 lakh or more.
- Either one of the properties ( house or place of business) should be in the owner’s name.
Read More: Everything You Should Know About Loan Structuring
Benefits of Taking a Business Loan with ZipLoan
- The amount of business loan is available within 3 days of applying. (This facility is available when necessary paper documents are available)
- The loan can be applied online from home.
- The business loan amount is prepayment free after 6 months.
- You can repay the loan amount between 12 to 36 months.
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