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What is a Working Capital Loan?
A working capital loan is a short-term loan. It can be either unsecured or secured. Working capital loans can cover a business's everyday expenses such as salaries, rent, utilities, and inventory management. A working capital loan aims to manage a company's short-term capital needs.
For Example: if the business is seasonal or suffers from fluctuations in revenue, then a working capital loan helps them to manage the financial gap during those times. It is like a lifeline that keeps your business running smoothly until you restore the flow of funds.

Working Capital Loan Details
Purpose |
A working capital loan is designed to help businesses manage their day-to-day operational expenses, including inventory, payroll, rent, and other short-term financial needs. |
Eligible People |
Small to medium-sized businesses Startups and established businesses Self-employed individuals or sole proprietors |
Interest Rate |
The interest rate for working capital loans can vary between lenders, typically ranging from 10% to 24%, depending on the borrower's profile. |
Processing Fee |
It ranges from 0.5% to 2% of the loan amount. |
Collateral Requirement |
Some lenders may require collateral, such as property, equipment, or inventory. Unsecured working capital loans may also be available for businesses with a good credit history or a solid financial standing. |
Repayment Tenure |
Repayment tenure can vary from 6 months to 5 years depending upon the loan amount and business cash flow. |
Interest Rate Type |
Fixed: The interest rate remains the same throughout the loan term. Floating: The interest rate may change based on market conditions. |
Business Vintage |
Most lenders prefer businesses with at least 1-2 years of operation. However, some may offer loans to startups if they show strong potential for growth and profitability. |
Key Benefits of Business Capital Loans
Business capital loans can work as a safety net for businesses. It helps them to restore the smooth functioning of the business without putting any strain on the business.
Here are some key benefits of the business capital loans:
Smooth Operations
Prevents delays in payments and thus enables smooth running of business operations.Flexibility
Working capital loans are short-term financing solutions made to address immediate financial requirements.Maintain Cash Flow
This is to ensure cash availability to enable coverage of any form of daily expenses.Why Does a Business Need to Apply for a Working Capital Loan?
Many organizations experience the effects of cash flow shortages, particularly during off-peak periods or while awaiting customer payments. As a result, a working capital loan guarantees the continuity of business operations without interruptions.
The working capital loan assists organizations in preserving their liquidity without reallocating long-term resources toward larger business investments.

Why do you need a Working Capital Loan?
The need for a working capital loan differs from business to business.
Here are some common reasons why businesses need working capital loans:Cash Flow Gaps
At the start of a business, every company faces a time of slow cash flow. A working capital loan helps them to maintain a smooth flow at that time.
Sale Fluctuations
Businesses might go through experience highs during festive seasons and lows during off-peak seasons. A working capital loan provides the necessary cash flow during the slow months.
Expansion
When a business is growing, it needs extra funds to buy more stock, hire people, or open new branches. A capital loan can provide the funds that are needed for expansion without having any impact on the business’s daily operations.
Unannounced Expenses
Every business faces unannounced expenses. For example; inventory damage, natural disasters, or urgent orders. A business working capital loan can help to cover those emergencies without putting stress on the business.
Working Capital Loan Eligibility Criteria
Age of business:
At least 1-2 years of working experience is a basic requirement by most lenders.Annual Income:
Lenders mainly look for businesses that have a minimum turnover, so that they can repay the loan.Credit Score:
A credit score of 700 and above shows the financial discipline of the applicant.Business Plan:
Lenders might ask for a business plan to understand the intention of the loan.
Documents required for a Working Capital Loan
While applying for a working capital loan, a set of documents will be required to show the stability of your business's finances.
Most working capital loan lenders require the following common documents for loan approval:- Pan card of the company
- Proof of business registration including partnership deed, certificate of corporation
- Bank statements for the last 6 months
- Income Tax Returns (ITR)
- Audited financial statements
- KYC documents ID and address proof
- Ownership of the property whether it's personal or commercial
- Loan details of an existing Loan (if any)
- Address Proof
- Sales Tax challans of previous three years

How to apply for a Working Capital Loan in India?

Types of Working Capital Loan in India
In India, businesses can choose from various types of working capital loans depending on their needs
Here are some popular types of capital loans:Term Loan for Working Capital
They are short-term loans where you can borrow a lump sum amount that must be repaid over some time with interest. These are useful for businesses that are looking for predictable cash flow.
Working Capital Demand Loan (WCDL)
This is a flexible loan where the borrower can take funds when they are in need, up to a certain limit. Interest is charged on only the amount that is used by the borrower.
Overdraft
With an overdraft facility businesses can withdraw more than what is available in their account, up to an approved limit, to cover short-term expenses. Interest is charged on the utilised amount.
Invoice Financing
Businesses can use unpaid invoices as collateral to get instant working capital. This method is especially helpful for businesses with long payment cycles.
Cash Credit
It is similar to an overdraft, cash credit allows businesses to borrow money as collateral, for example, inventory or accounts receivable.
Working Capital Loan Interest Rates

Which banks to prefer for working capital loans in India
Different banks provide working capital loans at varied rates of interest. Here are a few of the top banks that provide working capital loans at an affordable rate of interest.
Banks |
Rate Of Interest |
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18% |
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13% to 22% |
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10.95% |
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16.99% |
Factors that Affect the Interest Rates of Working Capital Loan
Interest rates of the loan for working capital are affected by different factors.
A few of the factors mentioned below can be taken into account to avoid any complications in the future:
- Credit Score: The higher the credit score, the lesser the interest rates.
- Business Finances: Strong financial background and assets help get better rates.
- Loan Tenure: In most cases, the term for a short loan period may attract lesser rates.
Working Capital Loan EMI Calculator
An EMI calculator is an online tool that helps the borrower calculate budget-friendly EMIs for working capital loans. To get your easy EMIs, you need to enter the basic details related to a working capital loan which are the loan amount, repayment tenure, and the rate of interest.
With the output of the calculator, you can calculate your EMI instantly. The working capital loan EMI calculator helps you to plan your budget so that you can repay the amount in time for the working capital loan.
Frequently Asked Questions on Working Capital Loans
What is the working capital loan ratio?
The working capital loan ratio is calculated by dividing current assets by liabilities.
Can new businesses be eligible for a working capital loan?
Yes, the new businesses can get working capital loans but the eligibility criteria can be different as compared to the older businesses.
Why get a working capital loan?
A working capital loan can help the business's regular operations without any interruptions.
It allows businesses to restore the gap of financial fluctuations and allows them to focus on long-term goals.
Who can avail of a working capital loan?
Anyone who meets the eligibility criteria can avail a working capital loan including businesses, self-employed people, and individuals who want small business loans.
Can I apply for an instant online working capital loan?
Yes, many financial institutions in India, such as My Mudra, offer working capital loans online.
With My Mudra, you can apply digitally and if you meet the eligibility criteria with all the required documents, then the amount will get disbursed instantly.
What are the interest rates for working capital loans?
The rate of interest for working capital loans with My Mudra falls between 15% to 28% p.a.
How is working capital loan eligibility calculated?
Working capital loan eligibility is calculated while using the given formula:
Working Capital (WC) = Current Assets (CA) - Current Liabilities (CL)
What is the age limit of working capital loan?
The age limit to get a working capital loan should be between 23 years to 65 years.
