working capital and startup loan

Difference Between Working Capital and Startup Loan

  • Which is better, working capital or a startup loan?
  • What is Working Capital Loan?
  • What are the benefits of Working Capital Loans?
  • What is Startup Loan?
  • What are the benefits of a Startup Loan?

We live in the golden age of the internet. With increased digital opportunities, we have better and easier ways to fulfill our dream of owning a business. Many small businesses have been able to build up their identities in recent years. 

One important thing to consider while starting with any business is capital investment. Business loans provide this initial sum, thus kickstarting a startup’s journey towards a full-fledged business. 

Which is better, working capital or a startup loan?

You need to decide for yourself which loan you require. Startup loans are limited to businesses in their seed stage and are disbursed specifically to new ventures to develop their infrastructure and fund new ideas. 

On the contrary, working capital is financial aid borrowed by a businessman at any stage of his business. This capital may be used for various purposes like hiring, purchasing, and expanding the business. 

What is Working Capital Loan?

It is a short-term, small-ticket business loan. The amount may vary from 50 thousand to 2 crores rupees. The interest rates are moderate, around 1%- 2% per month. There are no hidden charges except a small processing fee. They have flexible repayment options with tenure ranging from 1 to 36 months.

What are the Benefits of Working Capital Loans?

A working capital comes with several benefits like:

1. Ownership 

Working capital loans ensure that you do not encounter equity disinvestment in your business. Quick access to credit without any collateral makes working capital loans hassle-free. 

2. Faster processing

Working capital loans are generated within a very short time. Once all documents are submitted and verified, the loans are usually disbursed in a few days. Your applications are processed and executed within three days of application. 

3. Stabilizes unconventional upheavals

Emergencies can strike anyone and anytime. Businesses come with potential risks of unanticipated cash crunch and crises. Working loans provide you with easy and disposable cash during cyclic upheavals in sales and revenue.

What is Startup Loan?

These business loans are given for up to Rs 5 crores to finance innovation, development, deployment of a new product, processes, or services, etc. Startup loans can only be availed by businesses designated as startups by the concerned governmental authorities under the Startup India Scheme.

What are the Benefits of Startup Loan?

Startup loans are beneficial because:

1. Quick Disbursal

Time is one of the crucial assets which define all kinds of finance. Business opportunities are fickle by nature. If you cannot secure sufficient investment within the stipulated deadline, you stand an unfortunate chance of missing out on that opportunity. It might evade or become costlier. 

An exhausting number of applications from small businesses requires long hours of scrutiny. The banks follow their traditional protocols, which disbursing business loans. This might become disadvantageous to small businesses that need urgent loans. 

NBFCs are helpful in such situations; their service is limited to MSME finance. The efficient and transparent system at Ziploan allows timely verification and quick disbursals of startup loans. 

2. Online Application

The quick accessibility of startup loans of NBFCs can be attributed to their process of application. Traditional banks require customers to stand in queues for hours and complete tedious paperwork of application. 

NBFCs, on the other hand, provide an easily accessible and transparent online method of application. There is little paperwork involved, and almost everything is done online. 

An online lender usually asks for PAN, Aadhar, Bank Statements, and ITR certifications. Udyog Aadhar has made it simpler as all startups can access services using its number. A quick overview of these documents saves unnecessary time spent on the manual application. 

These documents are issued by the government, which establishes your legitimacy. They can further be verified on the government’s online portals. This advantage of the online system saves time. 

3. Repayment Options

The startup loans can easily be paid within reasonable tenure. NBFCs know that their target audience majorly includes small businesses. They set real interest rates keeping in mind the financial position of the startup enterprises. 

There is considerable flexibility in EMIs for the business to help them pull through unexpected cash crunches. There is no implicit or hidden charge made upon you through the course of the loan.

Conclusion:

So if you are looking for business expansion, working capital should do the job. But if you wish to start a business, opt for a startup loan. I hope now you clear about the difference between working capital and startup loan.

Also Read: How to Get Approval for a Home Loan?