A loan is a sum of money borrowed for a specific purpose at a rate of interest with the promise to repay the amount in the future. Lending institutions offer business loans to entrepreneurs at attractive rates to set up or expand a business.
Demand loans also known as Working Capital Loans are the loans required to be repaid on the demand of the lender. The lender can demand this repayment of the loan any time even at short notice. The primary difference between demand loans and term loans is that demand loans are sanctioned without any fixed duration usually for short-term business requirements. Here are a couple of distinct features and advantages of opting for demand loans:
Term loans are sanctioned for a specific tenure and repayment schedule. It is best suited for the long term and capital-intensive requirements.
Sr. No. |
Demand Loan | Term Loan |
1 |
Demand loans, also known as working capital loans are pre-approved lines of credit that are secured in nature. |
Term loans can be either secured or unsecured in nature. |
2 |
Demand loans are ideal to meet the needs of raising capital for short-term start-up businesses that can be used to purchase materials, pay salaries, rent, etc. |
Term loans are used for large capital expenditures such as the purchase of land, expensive equipment, new business, etc. |
3 |
The interest is only charged on the amount that is actually withdrawn from the account by the borrower. |
Interest on term loans is charged on the total sanctioned amount. |
4 |
The repayment tenure of a demand loan can be no less than 7 days and is usually at the behest of the lender. |
Repayment tenures of term loans can be for up to 30 years. |
Having a clear idea about your short and long-term business goals can help in shortlisting the right loan product. Log into the website of the loan provider and calculate the approximate loan amount you can avail of, instalments payable with the help of a business loan EMI calculator.
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