A term loan buys the machine; working capital keeps it running. Confusing the two — or taking one without the other — is a common reason good projects stall. Here's the difference.
A term loan is borrowed for a defined purpose — usually creating fixed assets — and repaid over a fixed tenure (commonly 5–7 years) through EMIs, often after a moratorium during construction. It's assessed on project viability and repayment capacity, measured through DSCR. This is the loan a DPR is built around.
Working capital is a revolving facility — typically cash credit — that funds day-to-day operations. There are no fixed EMIs; you draw and repay as your cycle turns, paying interest only on what you use. It's assessed through CMA data and the operating cycle, and renewed annually.
| Feature | Term Loan | Working Capital |
|---|---|---|
| Funds | Fixed assets (machinery, building) | Operating cycle (stock, receivables) |
| Tenure | Fixed, multi-year | Revolving, renewed annually |
| Repayment | EMIs, often after a moratorium | Draw & repay as cycle turns |
| Assessed by | Viability & DSCR (DPR) | Operating cycle & MPBF (CMA) |
| Interest | On the outstanding loan | On amount utilised |
A new unit that borrows only a term loan buys its machinery and then discovers it has no cash to buy raw material or carry the first customers on credit — a classic, avoidable failure. A sound project plans the term loan and the working-capital limit together, so the DPR funds the assets and the CMA funds the operations. The two documents must tell one consistent story.
A term loan funds fixed assets and is repaid in instalments over years; working capital funds the operating cycle and revolves as you use and repay it. They serve different purposes.
A term loan is assessed on viability and DSCR (through the DPR); a working-capital limit is assessed on the operating cycle and MPBF (through CMA data).
No — a term loan is sanctioned for a specific fixed-asset purpose. Using it for operations leaves the asset unfunded on the working-capital side and creates a repayment mismatch.
Almost always. The term loan buys the machinery; the working-capital limit lets the unit operate after commissioning. Planning both together avoids running out of cash.
We'll structure both so your DPR funds the assets and your CMA funds operations — one consistent story the bank can approve. The first assessment is free.
Related reading: Working Capital Loan Guide · How to Prepare a DPR for a Bank Loan · DSCR Explained · Cash Credit vs Overdraft · What is CMA Data?
CA Nikhil Gupta structures term loan and working capital together, so your project doesn't stall after commissioning. Free assessment, no upfront fee.
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