Working capital is a necessity as it is a measure of the financial health of a business. A positive value indicates a stable business while a negative value denotes the opposite.

Why Avail a Working Capital Loan

  1. To maintain a positive value that projects the company’s financial stability

  2. To survive during financially troubling times such as during a low sales period or to meet high market demands

  3. To meet financial obligations and short-term goals

  4. To satisfy other business needs including hiring expert staff, expanding the business, relocating operations, and others.

Advantages of a Working Capital Loan

  1. Working capital loans or finances are flexible due to its interest rates and repayment terms, thus allows in fulfilling unexpected financial requirements.

  2. Not all working capital loans require collateral. Thus, businesses can avail loans with or without depositing collateral, however, the interest rates in both cases are found to vary.

  3. Availing a working capital loan is easy, fast, and simple, as the paperwork involved is minimal. Good credit scores and online application processes have increased the process further.

  4. Working capital loans, unlike specific business loans, can be used to meet the business’ any short-term requirement and require no probe.

  5. Availing a working capital loan is better and preferred to over investors investing in your business during a financial crunch because loans allow you to maintain ownership unlike outside investing where a part of your decision-making ownership is lost to the investor.

Important Tips for Availing a Working Capital Loan

  1. Know your eligibility criteria such as the loan amount and requirements based on the business you are involved in such as Sole Proprietorship, Private Limited, Public Limited, or a Partnership.

  2. Know when to apply for a cash credit and an overdraft. Although these are used for short-term financial requirements, the features and terms & conditions vary.

  3. Get an understanding of the different types of working capital loans that are available so that you can make use of the best one based on your need. For example, avail an export credit to meet your exporting requirements, a “buyers credit” or “letters of credit” to deliver goods on time, bank guarantees to protect your business against deferred or non-payments.

  4. Know the criteria for loan assessment including sanction limits, the minimum number of active business years, annual turnover, sources of cash flow, and others.

  5. Find out and determine whether the loan tenure, loan charges, and interest rates are attractive or not. Evaluate all parameters collectively to choose the best loan option.

  6. Check if you need to provide collateral or not and if not enquire the difference in the interest rates that you need to repay.