Two different jobs
Working capital funds the operating cycle — stock, debtors, GST, and wages. A term loan funds a one-time asset or expansion that will earn over years. Using a term loan to plug every cash-flow gap, or using OD to buy a machine, is how many SMEs end up with tight EMI months.
Working capital tools
- Cash credit / overdraft against stock and book debts.
- Invoice or bill discounting against acceptable buyers.
- Short-tenure unsecured WC for seasonal peaks.
- Limits should rise and fall with sales — not stay fully drawn all year.
Term loan tools
- Plant & machinery finance with tenure matched to asset life.
- Business term loan for expansion, fit-out, or capex.
- Loan against property when you need a larger ticket at a better rate.
- CGTMSE-backed term loans when collateral is not available.
A simple decision test
Ask: “Will this spend turn back into cash within one operating cycle?” If yes, it is working capital. If the benefit lasts several years, it is a term loan. Many growing units need both: a WC limit for day-to-day plus a term loan for capacity. We size them together so EMIs and interest do not collide.