When you are in sudden need of more funds, and you have already got a business loan, then a working capital is the right choice for you. Here you find detailed explanation and methodology of How To Avail A Working Capital Loan In India? In India, there are many financial institutions which are offering working capital loans for individuals and businesses who require working capital.
What Is A Working Capital Loan?
A working capital loan is a credit that is availed by companies and businesses for covering their day to day operational charges. These are the best funding options which can help enterprises to focus more towards growth and generating a better capital. In India, this loan product has become popular among business owners as it helps in tackling their financial needs.
These loans cannot be used for buying long term assets and generally for wages, and other operations. When you are a small and medium enterprise which needs working capital for funding your day to day operations, then this is the best choice for you. The usual duration of working capital will be between 6 to 12 months, upon which the interest rate varies.
When Should You Consider Getting A Working Capital Loan?
The main reason for this loan is to provide short term funds which your business needs. When a business doesn’t have enough money to carry on with their daily expenses, they go for a working capital loan. These loans are considered as corporate debts for tackling businesses day to day expenses.
Not all businesses have excellent and stable revenue all through the year, and sometimes they will need extra funds for solving their financial needs. Some companies can sell their products only on festive times, so other times they might not have enough funds for fulfilling their day to day expenses. Sometimes before the peak season arises, manufacturers will want to stock up their inventory which will need extra funds.
When you are in a business with this type of working model, you will need a working capital loan for fulfilling your capital requirements. A working capital loan is designed for achieving specific purposes which will fulfil your financial needs on daily operations.
Here are top reasons which make a business take a working capital loan:
Seasonal Sales Fluctuations:
The most usual reason why someone would take this loan is if they are a seasonal business. This loan will help enterprises in paying off their day to day expenses when their sales are at the lower phase. You can get a working capital loan at this time for fulfilling your financial needs to capitalise your funding needs.
When you don’t have adequate cash reserves for emergencies, you can get a working capital loan to fulfil those needs. A cash reserve is significant for your business in the case of emergencies, so always make sure to have one.
Unsteady Cash Flow:
Sometimes your business might take time for paying off their invoices or for stocking up their inventory so at such times a working capital loan can help you. This loan type will boost up your cash flow and allow you to have funds for maintaining it.
Capitalising On An Opportunity:
Sometimes you might get an ample opportunity which you might not get again, at such times you can get a working capital loan for capitalising it without missing it. Not every time everyone will get excellent opportunities so you should grab it whenever it comes to you.
The working capital loan will fill your large orders by covering the expenses which it needs for manufacturing and shipping them. It will cover all the costs until you get the payment for your order. Sometimes businesses might not have the same cash flow they need all through the year; at such times a working capital loan will help a lot in fulfilling financial needs.
Advantages Of A Working Capital Loan:
The working capital loan can be based on your existing orders or your unpaid outstanding invoices. Sometimes because of these reasons, you cannot get a loan amount which you cannot pay back in time, so a working capital loan can cover the worries which you have related to it. We should make sure to avoid taking many loans together at the same time for preventing problems with repayments.
Here are the essential advantages which you should know about a working capital loan:
Doesn’t Require collateral:
When you have a good credit history, you will be perfectly eligible for an unsecured working capital loan. Most of the loans will ask for an inventory, your business documents or other things as security for the loan.
The most important benefit of a working capital loan in India is that it will be eligible for you to get short-term goals. It can include loans like account receivables, credit lines, inventory loans, equipment loans or bank credits which will require shorter repayment schedules. These loans have a flexible tenure and terms and conditions which will ensure better interest rates and options to choose.
Spending Money On Your Discretion:
A working capital loan comes with zero restrictions which makes it very easy to avail. The only thing the financial provider asks for is to increase your cash revenue and manage your day to day operations easily.
Types Of Working Capital Loans:
When you are thinking about getting a working capital loan, you should first filter out your working capital needs. There are many different types of working capital loans available in the financial market. You should choose the one which best suits you.
When you have a potential or current buyer, then a trade creditor working capital loan is the best option for you. The financial provider will check your credit score and your company credit history to ensure that you can repay the loan without any defaults before sanctioning it.
Account Receivable Loan:
The account receivable working capital loan is the loan which is sanctioned based on your confirmed sales order’s value. When you need funding for filling your current sales order, this loan type can help you a lot. But you should ensure that you have a good credit history for you and your business for getting this loan.
Bank Overdraft Facility:
When you have a stable relationship with your financial provider, then they can decide the interest rate and the amount which you can get for the loan. Bank overdraft facility is the option where you pay interest only for the amount which you use from the overdraft. But the interest rate is the same throughout the loan period.
A short term loan is a business loan which comes with a fixed interest rate and comes with a maximum tenure of 12 months. When your credit history is right, your financial provider will allow you to get the loan without collateral.
Factoring Or Advances:
This working capital loan type works similar to an accounts receivables loans which have an only dissimilarity is the value of the loan. The amount of this loan type will depend on your future credit card receipts, and this will be suitable when you accept credit card payments.
When you are a business with no credit history or bad credit history, then this loan type will help you. This loan is generally received from personal resources which makes it unique from others.
Things You Should Know About The Working Capital Loan:
The interest rate for this loan type will vary depending on the tenure you choose and will range between 12% to 16%, which will vary between lenders.
The typical tenure which comes with working capital is 12 months which is the maximum tenure and will come along with flexible collateral options.
The business owners should be aware of their needs and should understand how they have to handle the negative cash flow to maintain their business finances. It would help if you followed each of your business operations and the cost which it comes along with to ensure better and efficient financial statistics. The working capital loan is the most straightforward loan type which can fulfil all your short term financial goals and put your financial pressure a little down and help you be at ease.
You can get an accounting software which your business needs to ensure securing and maintaining your finances and using it right. It would be best if you did quality research on the financial providers available in the market to ensure that you choose the best one for your loan.