What is working capital demand loan?

A working capital demand loan is a flexible credit facility that lets businesses to access funds as needed without a fixed repayment schedule. Unlike traditional term loans, demand loans can be called for repayment by the lender at any time, making them suitable for short-term, fluctuating working capital requirements.

It operates as revolving credit facilities where businesses can draw out funds up to an authorised limit and then repay according to their cash flow cycles. Businesses only pay interest on the money they actually use, which can make this option more viable for businesses that don’t need funds all the time.

The characteristics include:

• No fixed repayment schedule
• Variable interest rates
• Immediate repayment upon lender's demand
• Flexible utilisation based on business needs

Applying for this type of loan is usually pretty straightforward. Lenders mostly look at your business turnover, recent financial statements, and your ability to repay. The paperwork is generally lighter than for other loans, but you’ll still need to show that your business brings in enough money and can handle repayments if asked.

Interest rates for working capital demand loans are often a bit higher than regular term loans. That’s because of the added flexibility and risk for the lender. Still, since you only pay interest on the amount you actually use, businesses that manage their cash well often end up paying less interest overall. This makes it a practical choice for companies that need funds only at certain times and want to keep borrowing costs down.

WCDLs require careful cash flow monitoring since lenders can demand repayment without notice. Businesses should maintain adequate liquidity or alternative funding sources to meet potential demand obligations while benefiting from operational flexibility.