Term Loan vs Working Capital Loan vs Overdraft

Business Finance

By CreditLink Advisors · 23 Feb 2026 · 6 min read

A term loan provides a lump sum upfront, repaid over a fixed tenure through scheduled EMIs — commonly used for asset purchase, expansion or one-time capital expenditure.

A working capital loan (often a demand loan or a dedicated working-capital facility) is typically sized to the operating cycle and used to fund inventory, receivables and short-term operational needs, usually reviewed and renewed periodically.

An overdraft (OD) or cash credit facility gives a business a revolving limit against which it can withdraw as needed, paying interest only on the amount utilised — offering flexibility for fluctuating short-term cash needs rather than a one-time expense.

Choosing between these depends on the purpose of funding, how predictable the cash need is, and how quickly the business expects to repay. Many businesses use a mix — for example, a term loan for a new machine and an overdraft for day-to-day working capital.

Disclaimer: This article is for general information only and does not constitute financial, investment or legal advice. Loan terms, eligibility and processes vary by lender and change over time — please verify current details with the relevant bank/NBFC or a CreditLink Advisors representative before acting.

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