A Working Capital Loan is a loan which helps the businesses to finance the day to day expenses like purchasing inventory, procurement of raw materials, paying for overhead costs like rent, salaries, paying suppliers in advance, maintaining a healthy cash level etc.
Financial urgency is a part and parcel of the businesses. To overcome these, working capital loans come handy. These loans are a dream come true for small and medium enterprises to cater to their financial requirements and run their day to day business without having to worry about the funds.
Working capital is calculated by the following formula:
Working Capital = Current Assets – Current Liabilities
Working capital loans are the funds to meet the immediate and short-term needs of your company or business. In times, when there isn’t much liquid cash to finance the daily operational requirements, working capital loans comes handy.
Who needs working capital loans?
Which business doesn’t need an extra dose of cash? Working capital loans in India is a great source of capital for SMEs and for businesses with seasonal sales who need cash in hand to meet the daily operational costs.
Age: 21 years to 65 years
Loan Amount: Dependent on applicant’s profile
Tenure: 12 month -48 months
Processing Fee: Up to 2% of the loan amount
Interest Rate: Variable from bank to bank (usually 16 % onwards)
Collateral Security: Not required
Offered to: Pvt. & Ltd. Firms, MSMEs &Self-employed
Interest rate type: Fixed
Business tenure: Min. 3 years in business with profit
Why are working capital loans needed?
Ups and downs are part of businesses. To overcome loss or stagnation in businesses, working capital loans becomes a need. These loans are usually given to MSMEs and not to the big corporate companies for meeting out the daily operational requirements. These loans are mostly unsecured in nature. They are often availed by businesses in the field of manufacturing, retailing, distribution, restaurants, stocking, services etc.
Benefits of Working Capital Loan
Short-tenured Loan: Working capital loans India have a repayment period of as low as 12 months. There is no need for businesses stressing over long term EMIs when taking this loan.
Maintain Ownership of your Company
Instead of borrowing funds from family and friends or using one’s savings to meet the daily expenses, it is advisable to borrow from banks or NBFCs.
Handle Financial Difficulties
It is always better to be prepared for the worst even if the business is flourishing and has many fixed assets. Bad days can knock the door anytime and working capital loans are a sigh of relief then. A crunch in working capital can lead to poor credit rating with it putting the pressure on the company thereby increasing the borrowing and late payments to creditors. A poor credit rating results in a higher interest rate on loan. With a working capital loan, one can have a free hand in terms of finances during the hour of shortages.
No Collateral Required
The best part of working capital loans India is the fact that they do not require any collateral as a security. Good credit history makes you eligible for such loans.
Helpful for Capitalising on an Opportunity
Working capital loans India ensures that your hard work doesn’t go in waste when it comes to grabbing the business opportunity or deal which you been eyeing for long. The funds can be used to capitalise on an opportunity which is great for the growth of your business.
Helps in Lean Periods
Businesses often face lean patches with sales being high during some season, while some season being completely dry. This can create instability and the business owner may have to face many risks and challenges in terms of running the business and managing of finances. Working capital loans can help to overcome these lean patches by providing adequate funds. These funds can be used to overcome financial patches and be used for future operations as well.
Spend at Your Discretion
Business owners can use the money obtained from working capital loan at their jurisdiction. They are not answerable to the banks or NBFCs from which the loan has been acquired on how to utilise the funds. There are no restrictions on the borrower. But, the only clause is to use the money for ethical and valid needs. This is done so to avoid the dependence of business solely on the credit t manage the everyday finances.
Thus it is evident that working capital loans are saviours for flourishing businesses. Fintechs enablers like LoansJagat provides an excellent platform to choose the best loan deal by comparing different banks and financial institutions on parameters like interest rate, tenure and terms and conditions.