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Working Capital is the amount required by any business to meet its daily expenses. It is required to pay supplier’s bills, utility bills, raw materials, salaries & wages and other day to day running expenses.
Working Capital Loan is the short term financing that helps the businesses to bridge the financial gap aroused due to difference in current assets and current liabilities. It solves the short term liquidity problem of the business. Before taking this working capital loan, business entity should first analyze the amount of funds actually required by referring the working capital cycle.
Cash ❯ Raw Material ❯ Work in Process ❯ Finished Goods ❯ Receivables ❯ Cash
Secured working capital loan is backed by collateral security. It is to secure the event of default from the side of borrower. Collateral may be of any type like real estate property, equipment, vehicle or any personal asset.
Why should one go for Working Capital Loan?
Where the business is based on the seasonal demand factor, high working capital is required at the time of getting prepared to supply in the season.
It provides a cushion to the business that generally do not keep cash reserves for contingencies.
This loan is very helpful, where the cash flow is not even and it take a long time to get sale invoices be paid.
Features of Working Capital Loan
- Overdraft facility to meet day to day business requirements.
- Export credit schemes to support exporters for pre and post shipment capital.
- Large range of BG to meet financial need.
- Buyer’s credit and letters of credit as non-fund based facilities for clients.
- Easy to apply and prompt processing.
- Competitive Rates
Type of Working Capital Loans
- Overdrafts – Many Banks and financial institutions are providing overdraft facilities to businesses to overcome their short term financing needs.
- Revolving Credit Facilities –These are the form of pre-approved credit facilities.
- Invoice Financing – In this option, banks give the credit on the unpaid debtors i.e. unpaid invoice value. Seller can go to the bank or financial institution with the number of invoices to be financed, bank will use a factor and give the finance to the seller. The bank collects the money from the debtor on the maturity of invoices.
- Trade Finance or Supply Chain Finance – This means the credit allowed by the trade creditors against the purchase of goods or assets.
- Asset refinancing - Loan can be taken against the mortgage of assets of the business also.
- Letter of credit – It is a letter from buyer’s bank to seller’s bank which serves as a guarantee that the certain amount would be paid at a certain date.
- Bank Guarantee - It is a letter from the buyer’s bank to the seller which declare the seller to be indemnified in the case of failure from buyer’s side.
Eligibility
- Age 25-55 years.
- Business vintage of at least 3 years.
- Minimum turnover of Rs. 20 lakhs per year.
- ITR of at least 2 years.
Documents Required
- Passport size photograph.
- KYC Documents.
- Certificate of Business Existence.
- Financial Documents.
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