AI Answer Box
Term Loan is best for long-term investments like machinery, expansion, or fixed assets. Cash Credit (CC) is best for day-to-day working capital like inventory, raw materials, or cash flow gaps. Term loans have fixed EMIs, while cash credit offers flexible usage and interest only on the amount utilized.
Introduction
Whether you run an MSME, startup, or established business, choosing between a Term Loan and Cash Credit (CC) can directly impact your finances, cash flow, and operations.
Both loan types serve different purposes, and selecting the wrong one can increase costs or restrict growth.
This blog explains the difference in simple, practical language — with clear examples — so you can make the right decision.
What Is a Term Loan?
A Term Loan is a long-term business loan given for a fixed purpose:
Common Uses:
Buying machinery
Factory expansion
Increasing production capacity
Purchasing commercial property
Long-term business investment
Key Features:
Fixed loan amount
Fixed tenure (1–10 years)
EMI-based repayment
Usually secured, sometimes unsecured
Best For:
Businesses needing one-time capital for long-term growth.
What Is Cash Credit (CC)?
Cash Credit is a working capital loan that allows businesses to withdraw money as needed, up to a sanctioned limit.
Common Uses:
Purchase of inventory
Buying raw materials
Managing accounts receivables
Cash flow shortages
Key Features:
Interest paid only on utilized amount
No fixed EMI
Limit typically reviewed annually
Requires collateral (inventory, receivables, property)
Best For:
Businesses needing continuous cash flow support.
Term Loan vs Cash Credit — Full Comparison Table
| Feature | Term Loan | Cash Credit (CC) |
|---|---|---|
| Purpose | Long-term investments | Working capital needs |
| Repayment | Fixed EMIs | Flexible withdrawals |
| Interest | On full amount | Only on amount used |
| Tenure | 1–10 years | Renewed yearly |
| Collateral | Usually required | Always required |
| Usage | One-time | Multiple times |
| Cost | Lower interest | Slightly higher interest |
| Limit | Fixed | Rotating limit |
| Best For | Expansion, assets | Daily operations |
When Should You Choose a Term Loan?
Choose a Term Loan if your business needs:
Machinery or equipment purchase
Office, warehouse, or plant expansion
Technology upgrade
Vehicle purchase
Large capital infusion
Advantages:
Predictable EMIs
Long repayment tenure
Lower interest rates
Ideal for asset building
Disadvantages:
EMI burden
Less flexibility
Interest applies on the full amount
When Should You Choose Cash Credit (CC)?
Choose Cash Credit if your business struggles with:
Irregular cash flow
Seasonal sales
Inventory-heavy operations
Payment delays from clients
Advantages:
Pay interest only on the amount you use
Flexible withdrawals
Perfect for working capital
Helps manage temporary cash crunch
Disadvantages:
Annual renewal required
Needs collateral
Interest may be slightly higher
Real-World Example to Understand Better
✳ Example 1: Need Money for Machinery
A textile business wants to buy a new loom worth ₹10 lakh.
➡ Term Loan is better
✳ Example 2: Need Money for Daily Inventory
A trading business needs funds to buy stock every 10–15 days.
➡ Cash Credit is better
Which Is Better? Final Answer (Simple)
Choose Term Loan if:
You need funds once for a long-term asset.
Choose Cash Credit if:
You need regular working capital to run your business smoothly.
Both can be used together for balanced financial planning.
Vizzve Financial helps businesses access personal loans, business loans, working capital loans, and MSME funding with low documentation and high approval chances.
👉 Apply now at: www.vizzve.com
❓ FAQs
1. Which has lower interest rates: Term Loan or Cash Credit?
Term loans typically have lower interest than cash credit.
2. Can I take both Term Loan and CC?
Yes, many businesses use both.
3. Does CC require collateral?
Yes, usually inventory or receivables.
4. Do term loans have flexible repayment?
Not flexible — they come with fixed EMIs.
5. Which is better for MSMEs?
Cash Credit for working capital; Term Loan for expansion.
6. Is CC renewable every year?
Yes, based on business performance.
7. Can startups get cash credit?
Possible but difficult without collateral.
8. Can CC help maintain cash flow?
Yes, it is designed for that purpose.
Conclusion
Both financing options serve different business needs.
Choose based on whether you need long-term capital or working capital flexibility.
If you want easy, fast, and reliable loan options for your business, Vizzve Financial connects you to trusted lenders with minimal documentation.
👉 Apply today at www.vizzve.com
Published on : 5th December
Published by : SMITA
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