Access to the right working capital product can determine whether a business rides seasonal peaks, fulfils a large purchase order, or misses growth opportunities. In 2025, lenders provide a wide mix of products — overdrafts (OD/CC), short-term loans, invoice-discounting, and specialised forex-enabled lines for exporters and importers. This article explains each option, shows when to use it, and helps you pick the best bank for business loan with overdraft facility for working capital or the short-term product that fits your cash-flow pattern.
1. Working Capital — the essentials
Working capital financing fills timing gaps between payables and receivables. Popular products include:
- Overdraft / Cash Credit (OD/CC) — revolving limit; interest charged only on utilised amount.
- Short-term term loans — fixed amount, fixed schedule, useful for one-off purchases or seasonal spikes.
- Invoice discounting & factoring — convert receivables into immediate cash.
- Pre-shipment & post-shipment export finance — tailored for exporters; often coupled with forex support.
- Supply-chain & LC lines — working capital linked to trade instruments like LCs and bank guarantees.
2. Overdrafts & Cash-Credit — how they work
The overdraft or cash credit gives you an approved limit against which you withdraw funds as needed. You pay interest on the outstanding (utilised) amount; the limit may be renewable annually. Typical features to compare:
- Limit sizing (often linked to turnover or receivables).
- Interest margin over benchmark (or fixed rate).
- Renewal terms and documentation requirements.
- Collateral or guarantee requirements.
Use the primary keyword here: When searching for the best bank for business loan with overdraft facility for working capital, focus on how the bank sizes limits (turnover vs receivables), the margin, and whether interest is charged monthly on outstanding only.
Pros & cons — overdraft
- Pros: Only pay interest on utilisation; flexible withdrawals; good for rolling needs.
- Cons: Floating cost if linked to benchmarks; limits subject to annual review; usually needs collateral or guarantor for larger limits.
3. Short-term loans & seasonal financing
Short-term loans provide a fixed sum for a short tenor (typically 3–12 months). These suit predictable, one-off needs such as seasonal inventory purchases, short campaigns, or buying machinery where repayment is expected from a specific cash inflow.
When comparing short-term loans to OD, consider:
- Cost predictability — fixed EMI vs variable interest on OD.
- Processing time and documentation.
- Prepayment options — some short-term loans are freely prepayable without penalty.
4. Forex-enabled facilities for exporters & importers
Exporters and importers often need specialised lines:
- Pre-shipment finance — funds to purchase raw materials or process goods before shipment.
- Post-shipment finance — bridging receivables until buyers pay overseas.
- Forex lines — foreign-currency working capital, LC margins, and hedging facilities (forwards/options).
For exporters, the best bank for business loan for exporters and importers (forex facilities) will offer coordinated FX risk tools and competitive post-shipment tenor aligned with buyer credit days.
5. How banks & NBFCs differ for working capital
Different lenders specialise in product types:
- Large commercial banks — typically provide OD/CC and trade lines with lower margins for prime borrowers and full trade-service suites for exporters.
- Public / MSME-focused banks — often offer scheme-linked concessional processing and CGTMSE-backed products for smaller enterprises.
- NBFCs / fintech — quicker underwriting and flexible acceptance of alternate documents; good for short-term and invoice-discounting needs.
6. Comparison table — choose by need
| Product | Best for | Typical tenor | Interest / fee profile | Collateral |
|---|---|---|---|---|
| Overdraft / Cash Credit (OD/CC) | Recurring or unpredictable working capital | Revolving (renewable 12 months) | Interest on utilisation; processing fee | Often collateral / guarantee |
| Short-term term loan | Predictable one-off needs (seasonal inventory) | 3–12 months | Fixed interest / EMI; may allow prepayment | Depends on lender & ticket size |
| Invoice discounting / Factoring | Receivable-backed liquidity | Days to months (as receivables) | Discount fee + interest | Receivables assignment |
| Pre/post-shipment & forex lines | Exporters / importers | Varies (linked to LC / buyer credit days) | Often currency-linked rates; hedging costs | Usually backed by export docs / LCs |
Note: Table fields show typical features; exact pricing and tenor depend on lender, borrower profile and product variant. Consider asking for written quotes from 2–3 lenders.
7. Real-life examples (brief)
Case A — Seasonal retailer
A retailer needs ₹25 lakh for festival stock for 3 months. Option 1: OD of ₹30 lakh (pay interest only on use). Option 2: Short-term loan ₹25 lakh for 3 months with fixed interest. If utilisation is expected to be full for the period, cost difference may be small; if utilisation fluctuates, OD could be cheaper because interest accrues only on used portion.
Case B — Exporter
An exporter has pending invoices with 90-day credit. A combination of pre-shipment finance (to make goods) and post-shipment finance (to bridge receivables until payment) with a forex hedging facility reduces FX risk and aligns cash flow — banks offering end-to-end trade finance are ideal here.
8. Eligibility & documents — quick pack
Prepare a short application pack to speed approvals:
- Entity ID (PAN, Aadhaar / director IDs) and business registration (GST / Udyam).
- Bank statements (6–12 months) and latest ITRs (1–2 years) or invoice histories for startups.
- Sales contracts, POs, export docs (for exporters) and CA certificate (if requested).
- Collateral documents (property / hypothecation) if required.
9. Fees & hidden costs — what to check
Beyond headline rate, add:
- Processing / arrangement fees.
- Commitment fees (on unutilised OD limits).
- Drawing charges or per-withdrawal fees for certain OD products.
- LC / BG commission and forex hedging costs for trade lines.
Calculate the effective cost assuming realistic utilisation (e.g., 30–60% utilisation for OD) to compare with a fixed short-term loan.
10. Calculator — OD utilisation vs short-term loan
Enter your numbers to see a quick comparison (simple model):
11. Negotiation & timing tips
- Apply before your peak season to secure limits in time.
- Use written offers from multiple lenders to negotiate margins or waive commitment fees.
- For exporters, time your pre-shipment request to match supplier lead times and buyer credit terms.
12. Decision matrix & quick action plan
- List your working capital need (amount & expected duration).
- Estimate utilisation (for OD) or exact cash need (for short-term loan).
- Gather documents and request 2–3 written quotes (bank, NBFC, fintech).
- Run the calculator, compare fees and break-even, and negotiate terms.
- Choose the product aligned to your cash-flow pattern and confirm terms in writing.
13. FAQs
What is the main difference between OD and a short-term loan?
OD is a revolving limit where interest is charged only on the utilised amount; short-term loans are fixed sums repaid over the tenor. OD is flexible; short-term loans give cost predictability.
Can overdrafts be used for forex payments?
Some banks provide forex-enabled working-capital lines that support forex payments, LC margins and hedging. Check with the lender for currency-specific facilities and controls.
How do exporters get pre-shipment finance?
Exporters present POs, processing contracts or promissory notes to the bank. Banks offer pre-shipment finance against confirmed export orders, often with favourable tenor tied to expected shipment.
How should I calculate effective OD cost?
Estimate realistic utilisation (e.g., 30–60%), multiply by OD rate and tenor to get expected interest, then add commitment / drawing charges to compare with fixed-term loan cost.
14. Conclusion & next steps
Match the working capital product to your cash-flow behaviour: use OD for recurring/variable shortfalls, short-term loans for fixed known needs, and specialised forex lines for export/import cycles. Collect written quotes, model utilisation vs fixed-cost, and negotiate fees and commitment terms. For personalised comparisons and assistance applying, visit Infinity Finance – Apply for Working Capital.
Article last updated: Aug 2025. Product features and pricing change frequently — request written lender quotes for precise offers.