Getting money at the right moment can help your business grow. A Working Capital Term Loan (WCTL) gives you a one‑time lump sum you repay in regular installments over 1 to 5 years. You can use it to buy stock, cover unpaid bills, or handle short‑term costs. Unlike revolving credit lines, WCTLs have fixed monthly payments and a clear repayment plan. In this guide, we’ll show how WCTLs work, who can apply, and whether it’s the right choice for your business.
Working Capital Term Loan Highlights
Here is a detailed highlights table for a working capital term loan :
| Feature | Details |
|---|---|
| Loan Amount | ₹1 lakh – ₹50 crore (varies by lender, business size, collateral) |
| Repayment Period | 1 – 5 years (longer terms generally require stronger credit) |
| Interest Rate | Fixed: 8%–14% p.a.; Floating: MCLR + 2–5% (resets quarterly or semi‑annually) |
| Repayment Schedule | Equal monthly installments (EMIs) or equal quarterly installments (EQIs) based on an amortization schedule |
| Processing Fee | 0.5%–2% of loan amount (may be deducted from disbursal or billed separately) |
| Collateral | Hypothecation of inventory & receivables; larger loans may require property or personal guarantees |
| Allowed Uses | Inventory purchase, bridging receivables, short‑term expenses; not for long‑term assets or real estate purchases |
| Who Can Apply | Businesses with ≥ 2 years in operation, annual turnover ≥ ₹50 lakh, and CIBIL score ≥ 700; some NBFCs lend to younger firms at higher rates |
| Paperwork | 2–3 years’ audited financials; 6–12 months’ bank statements; KYC documents; GST & ITR filings; collateral deeds; digital uploads accepted |
| How to Apply | Online via lender portal or by visiting a branch; online pre‑checks often speed up the process |
| Approval Time | 7–15 business days from application to sanction (quicker with complete documentation and digital processing) |
| Disbursal | 3–5 business days after sanction |
| Prepayment | Allowed after 6–12 months; usually a 1%–2% penalty on prepaid amount—check your lender’s terms |
| Top‑up/Renewal | Requires a fresh loan application; repaid principal cannot be redrawn |
What Is a Working Capital Term Loan?
A Working Capital Term Loan (WCTL) is a fixed‑sum business loan repaid in equal monthly installments over 1–5 years, designed to fund short‑term needs like inventory, payroll, or receivables. With competitive fixed or floating rates tied to base rate/MCLR, it offers predictable EMIs and clear repayment schedules. Ideal for bridging working‑capital gaps, a WCTL simplifies cash‑flow planning and ensures you have the funds you need when you need them.
Suggested Read: Working Capital Term Loan by Federal Bank.
Working Capital Term Loan Interest Rates
Below is a snapshot of current interest rate ranges (as of July 2025):
| Lender | Interest Rate (p.a.) | Notes |
|---|---|---|
| Axis Bank | 11.50 % – 19 % | Secured/unsecured; rate depends on credit profile |
| HDFC Bank | 10.50 % – 15 % | Floating rates linked to MCLR; fixed options available |
| IDFC FIRST Bank | 11.18 % – 15 % | Risk‑based pricing; faster online processing |
| Kotak Mahindra Bank | 11.75 % – 13 % | Competitive for seasoned borrowers |
| ICICI Bank | 16 % | Unsecured business loan bracket |
| Tata Capital (NBFC) | 13.50 % – 26 % | Broad SME focus; flexible tenures |
Eligibility Criteria for Working Capital Term Loan
| Criterion | Requirement |
|---|---|
| Business Vintage | ≥ 2 years in operation |
| Annual Turnover | ≥ ₹50 lakh |
| Credit Score | CIBIL ≥ 700 |
| Profitability | Positive net profit (last 1–2 years) |
| Bank Statements | 6–12 months current‑account history |
| Collateral | Inventory/receivables; property/PG |
| KYC & Registrations | ID & address proofs; GST & ITR |
Documents Required for Working Capital Term Loan
Here is the list of documents required for the Working Capital Term Loan:
| Document | Purpose |
|---|---|
| Audited Financial Statements (2–3 yrs) | Shows revenue, expenses, and profitability |
| Bank Statements (6–12 months) | Demonstrates cash inflows and outflows |
| KYC Documents | Identity & address proofs of owner(s)/director(s) |
| GST Registration Certificate | Verifies business registration and tax compliance |
| Income Tax Returns (ITR) Acknowledgments | Confirms declared income and tax filings |
| Collateral Papers (if applicable) | Title deeds or hypothecation agreements |
Key Features of Working Capital Term Loan
| Feature | Description |
|---|---|
| Fixed Disbursement | Lump‑sum release of funds in one go, not a revolving facility |
| Structured Repayment | Equal monthly (EMI) or quarterly (EQI) installments over a set tenure |
| Interest Options | Choice of fixed rates or floating rates linked to base rate/MCLR |
| Predictable Cash Flow | Fixed repayment schedule simplifies budgeting and forecasting |
| Collateral Requirement | Typically hypothecation of inventory and receivables; additional security for larger loans |
| Flexible Usage | Funds can be used for inventory, receivables, payroll, or other working‑capital needs |
| Tenure Range | 1 to 5 years, depending on business needs and lender policies |
| Processing Time | Quick turnaround—generally 7–15 business days from application to sanction |
| Prepayment Option | Early repayment allowed post lock‑in period, usually with a small penalty |
How to Apply for Working Capital Term Loan?
Follow these steps to apply for a Working Capital Term Loan:
- Check Eligibility
≥ 2 yrs in business, ≥ ₹50 L turnover, CIBIL ≥ 700.
- Gather Documents
2–3 yrs audited financials, 6–12 months bank statements, KYC, GST & ITR, collateral papers.
- Compare Lenders
Rates, fees, turnaround, and digital options.
- Submit Application
Online or branch, attach all documents.
- Undergo Appraisal
Lender reviews your financials, credit, and collateral.
- Sign Sanction Letter
Confirm terms, then sign the loan agreement.
- Receive Funds
Disbursal in 3–5 business days.
- Repay EMIs
Stick to the schedule to avoid penalties.
Working Capital Term Loan vs. Other Working Capital Products
The table highlights the major differences between Working Capital Term Loan and other Working Capital products:
| Feature | Working Capital Term Loan | Cash Credit | Overdraft | Invoice Discounting |
|---|---|---|---|---|
| Disbursement | Lump‑sum advance | Revolving credit limit | Revolving credit limit | Funds released against specific invoices |
| Tenure | 1–5 years | Renewable annually | Renewable annually | Short‑term, tied to invoice maturity |
| Repayment | Fixed EMIs/EQIs | Interest on amount utilized; principal on renewal | Interest on amount utilized; principal on renewal | Deducted from customer payment |
| Flexibility | Low (no redraw of repaid principal) | High (withdraw and repay as needed) | High (withdraw and repay as needed) | Medium (only against billed receivables) |
| Interest Calculation | On full loan amount | On daily outstanding balance | On daily outstanding balance | Discount fee on invoice value |
| Collateral | Inventory, receivables; sometimes property/PG | Inventory, receivables | Inventory, receivables | Debtor invoices (often without additional security) |
| Prepayment | Allowed after lock‑in; small penalty may apply | N/A (revolving) | N/A (revolving) | N/A (revolving per invoice) |
| Ideal Use Case | One‑time funding for a defined need | Ongoing working‑capital requirements | Unplanned cash‑flow gaps | Fast cash against confirmed invoices |
Top Banks Providing Working Capital Term Loan
Here are the top banks offering Working Capital Term Loans, with their current interest-rate ranges:
| Bank | Interest Rate (p.a.) | Processing Fee | Notes |
|---|---|---|---|
| HDFC Bank | 10.75 % – 22.50 % | Up to 2 % of loan amount | Rack rate for business loans; digital applications available |
| ICICI Bank | Repo + 2.50 % – Repo + 6.00 % | Up to 2 % of facility | Secured facilities; non‑PSL lending bracket |
| State Bank of India | 9.00 % – 17.00 % | 2 % – 3 % of loan amount | Business loan rates; CIBIL ≥ 550 required |
| Kotak Mahindra Bank | 11.00 % – 18.00 % | 0.1 % – 2 % of loan amt | Competitive rates for SMEs; online pre‑check available |
Conclusion
A Working Capital Term Loan gives you a lump‑sum advance with fixed EMIs and competitive rates—perfect for buying inventory, covering receivables, or handling unexpected expenses. Compare lenders on rates, fees, and approval times, then gather your financials and KYC docs to speed up the process. Contact Credit Dharma today for a free eligibility check and secure the working capital your business needs.
Need Quick Funding? Enquire for a Working Capital Term Loan!
Frequently Asked Questions
Many banks require a minimum of 2–3 years of operating history. However, certain NBFCs and fintech lenders offer WCTLs to start‑ups with strong financial projections and viable business models, often at higher interest rates.
Lenders typically hypothecate current assets (raw materials, finished goods, receivables). In some cases, additional security such as property or plant & machinery may be mandated, depending on the loan amount and your credit profile.
Can I increase my Working Capital Term Loan amount mid‑tenure?
No, unlike revolving facilities, Working Capital Term Loans disburse a fixed sum upfront. To access additional funds, you’d need to apply for a fresh loan or request a top‑up, which entails a new appraisal process.
Compare interest rates (fixed vs. floating), processing fees, prepayment terms, and turnaround times. Also evaluate the lender’s industry expertise—specialized NBFCs may understand your sector’s cash‑flow cycles better than generalist banks.
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