Match the loan to the lifespan of what it buys
This is the whole principle. Short-term needs take short-term funding; long-lived assets take longer-term funding.
Working capital
Covers the gap between paying suppliers and being paid by customers. Useful for stock, payroll during a seasonal dip, or a large order that needs funding up front. It is repaid quickly, from the cash the activity generates.
Term loans
Fund something that keeps earning for years: equipment, vehicles, a fit-out, an acquisition. Repayments spread across the useful life of the asset, so the thing you bought helps pay for itself.
The mismatch to avoid
Funding a five-year asset with short-term borrowing is the classic error. The repayments arrive long before the asset has returned its value, and the pressure lands on cash flow that was never planned to carry it.
Compare products and see your repayment before you commit.
