"Looking for a Business Capital Loan in India? Check out our latest blog to know all the details related to business working capital loans and their types."
Published: 18 December 2024
Updated: 19 December 2024
Big dreams need strong wings to fly! Running a business is not just about having groundbreaking ideas. It is about having the resources to make them alive. Just imagine a golden opportunity to expand your venture, upgrade essential equipment, or tackle unforeseen expenses that land in your lap, but you need more funds. Frustrating, right? Enter the superhero of business growth—the working capital loan! This financial lifeline will help businesses of all sizes, allowing you to seize opportunities without skipping a beat. In this blog, we will explore what a working capital loan is, why it is crucial to businesses like yours, and how you can apply step by step in India. Ready to ignite your business ambitions?
What keeps your business running? It is not big profits or grand plans - it is the ability to manage daily expenses fluently. That is where working capital loans act as your ultimate business friend. This short-term financial boost is meant to pay for everyday necessities such as salaries, rent, utilities, and inventory management. It is a perfect working capital loan for businesses experiencing seasonal shifts or unpredictable revenue fluctuations. It is a savior, and your business gets to keep running during its operations, even as it sorts out cash flow issues.
The need for a personal loan for working capital can differ from business to business. Here are some common reasons why businesses need working capital loans.
In India, businesses can choose from various types of working capital loans depending on their needs. Here are some popular types of capital loans.
Need a lump sum with predictable repayment? A term loan gives you a fixed amount you will pay back over time with interest. It Is perfect for businesses looking for steady cash flows. For example, a small manufacturing business secures a loan to cover the cost of raw materials and wages of its employees during a production cycle.
Think of it as your financial safety barrier. You can borrow up to a pre-approved limit when needed and pay interest only on the funds you use. Let us understand this with an example. A local retail store applies for a working capital demand loan to manage daily operational expenses like inventory restocking, utility bills, and employee wages until their sales revenue picks up after a seasonal dip.
Overdrafts allow you to overdraft your account up to a preset limit. You only pay interest on the amount of funds utilized. You will be able to recover in no time for short-term needs. For example, A freelance graphic designer uses an overdraft facility to cover unexpected expenses such as software upgrades and client project costs. This allows them to continue operations even when their account balance is low.
Cash credit allows you to pledge your inventory or accounts receivable as collateral and gain access to working capital for your business operations. We can understand this by an example: A wholesale distributor applies for a cash credit to ensure they can purchase large quantities of inventory in bulk before the festive season, paying back the loan once sales revenue is restored.
Tired of waiting for payments? Use your unpaid invoices as collateral to secure immediate working capital. A smart choice for businesses with lengthy payment cycles. For example, a construction company uses invoice financing to get immediate cash by selling unpaid invoices to a lender, which enables them to pay suppliers and workers on time while waiting for clients to settle their bills.
Interest rates on working capital loans in India can vary depending on lenders, loan amount, and the business's financial health. Working capital loan interest rates range from 10% to 20% annually. It is crucial to compare different lenders to find the most favorable rates for the business.
Many lenders give working capital loan calculators on their websites, allowing you to estimate your loan's cost based on the loan amount, interest rate, and repayment tenure.
Before you apply for a working capital loan, you should understand the eligibility criteria for working capital loan.
1. Business Tenure: Your business should have operational experience of at least 1-2 years to meet the standard requirements.
2. Credit Score: A score of 700 or above reflects excellent financial discipline and increases the possibility of approval.
3. Annual Turnover: Generally, lenders expect businesses to meet the minimum turnover threshold to guarantee loan repayment capability.
4. Business Plan: Some lenders can ask for a detailed business plan to evaluate your loan's purpose and how it aligns with your growth strategy.
While applying for a working capital loan, a set of documents will be required to show the stability of your business's finances. Most of the lenders require the following documents for loan approval:
Fortunately, working capital loans in India can now be applied online. Many organizations today have issued the facility of online applications that have reduced the amount of paperwork and, as a result, quicker approval. Below are the details on how to apply for a working capital loan in India.
It is very important to understand the business requirements for operational expenses. This will help you understand that the loan amount and type benefit your needs.
It is a key step to review the lender's criteria for application. It will ensure a hassle-free process without any rejections.
Collect all the necessary documents, such as bank statements, business registration proof, and financial statements, to avoid last-minute mistakes.
You can apply online through your preferred bank's website. Many lenders offer instant working capital loans for quick disbursal.
Funds will be disbursed to your business account after being approved by the banks or NBFCs.
With online services, most companies are now applying for working capital loans online. The following are some of the main benefits:
Getting a working capital loan in India can be a game changer for a business facing short-term cash flow issues. With different options like working capital demand loans, business capital loans, and invoice financing, you can choose the one that fits your business needs.
Always compare interest rates, eligibility criteria, and loan terms before choosing a business capital loan.
Are you operating a small business or just part of a multinational group? Regardless of size, applying for a working capital loan can change your business's decision today. Build a future for your business with new opportunities for growth and success.
Also read: What is a Working Capital Loan? Rates and Eligibility
