Working Capital

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Intoduction

Working Capital Loan is a credit facility offered to startups, business owners, self-employed professionals, MSMEs, and other business entities to manage their day-to-day business operations and enhance business cash flow. These are short-term business loans to meet urgent cash requirements that can be repaid within 12-60 months. Working capital loans offered by Banks/NBFCs can be both secured and unsecured loans, as well as in form of an Overdraft, Letter of Credit, and Merchant Cash Advance..

Types of Working Capital Loans

There are varieties of working capital loans available in the Indian financing market. Working capital management outlines a major part of the daily activities of an entrepreneur.Therefore, they have been divided into different types so that one can avail it according to their business needs.:

Overdraft (OD)

Overdraft is availed by most businesses wherein; the purchaser avails a specific amount for utilizing it to pay for operating payments. The rates of interest and line of credit depend on a firm’s relationship with the lending authority. Moreover, the businesses have to pay the interest only on the amount which is utilized by it, instead of the whole amount. It is the most cost-efficient solution as the borrower keeps on depositing the amount as and when he employs it, to save the interest cost.

Cash Credit:

These are the most significant and widely used types of working capital finance used by SMEs. This type of cash facility is provided by commercial banks. The borrower is approved for a specific maximum limit – a number of funds that you can use for meeting various business needs and specifications for making business payments. One of the biggest advantages of availing this loan is that cash credit works like a credit card in that the borrower pays interest only on the amount used.

Eligibility Criteria

  • Age Criteria: Min. 21 years - Max. 65 years

  • Business Vintage, Annual Turnover, and Profitability criteria shall  be defined by the lender

  • Good credit score, financial stability, and repayment history of the applicant/enterprise

  • No previous loan default with any financial institution

Documents required

  • Duly filled application form with passport-sized photographs

  • KYC documents of applicant and co-applicants that include Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card, and Utility Bills (Telephone,Electricity)

  • Last 1 year’s bank statemen

  • Partnership deed, if applicable

  • Certificate of Company Registration and Incorporation

  • Any other document required by the lender