Every business, whether it is small, medium, or large, needs finance to cover expenses or operational costs. A few of the examples are- office rent, wages, and short-term debt. Although there are different types of loans offered by finance companies, the working capital loan is the one preferred to cover business operations.
Working capital is a great cash assistant helping to bring down an urgent business finance burden. In India, there are different types of working capital loans available, including machinery loans, term loans, capital loans, etc. However, to every borrower, one of the questions that always pops up in mind is – how to repay the working capital loan?
Working capital management undertakes a significant part of daily activities conducted by the entrepreneur. Managing this activity is essential because working capital maintains day-to-day business operations smoothly. Inadequate management of funding can lead to non-payment of dues. Moreover, this will also lead to a halt in business running. This is why working capital loan becomes a need.
What exactly Working Capital Loans are?
Small and medium businesses are always in need of finance to run the company smoothly. Working capital loans are a short-term loan borrowed from finance institutes or lenders to manage the urgent need for business expenses. These loans are not for long-term purposes because of their shorter repayment rules. Once you are clear about working capital loan meaning, you can go ahead to apply for the same.
There are different types of capital loans business owners can look for. The amount can be anywhere from Rs 1 lakh to Rs 5 lakhs or more, depending on the requirement. Moreover, the repayment tenure can be 12-24 months.
Reasons why Working Capital Loans should be considered:
The primary purpose of seeking a working capital loan is to overcome short-term business fund emergencies. However, there are more to this that makes seeking capital loan essential:
- To keep Cash Reserve: Sometimes a business faces a cash crunch, especially during the emergency period. This is the time when you need to have a cash reserve. Having enough cash reserve in a business account is important. Moreover, seeking working capital loans can help in keeping your business working.
- Non-Steady Cash Flow: There are small and medium businesses taking a longer time to pay invoices and payout outstanding bills, resulting in inventory taking time to turn it over. With this loan, there will be a boost in cash flow and will help to keep the business running without a halt.
- For Capitalising the Opportunity: No business owner would like to go away with the opportunity on the way. Unfortunately, due to a shortage of funds, business owners face the situation of losing the opportunity. With the working capital loan, business owners can grab the opportunity and payback the loan with profits earned.
Let us check the top working capital loans of 2019 a reputed finance company offers-
- Term Loan: Known as short-term working capital loans, in this, small and medium-sized businesses get lump sum capital to repay within the year. Businesses sometimes face a shortage of funds to pay wages to employees, to renovate the business premise, or to buy new machinery. This is when the small business short-term working capital loan comes to play the role.
- Machinery Loans: Also called machinery purchase loans, this is one of the preferred working capital loan types and helps the business to buy modern tools and equipment. In today’s time, every business needs state-of-the-art machinery tools to fulfil sales demand and deliver quality products. However, all these come at a cost, and if your business is facing a shortage of money, then seeking a machinery loan is the best. From construction to packaging, any industry will require machinery loans.
As we have mentioned some best working capital loans available for 2019, let us check how beneficial it can be for small and medium-size business:
- Helps in Fueling Short-term Business Needs: As mentioned above, working capital loans are highly useful to fuel the short-term needs of your business. Since finance companies offer flexible repayment tenors, it becomes easy for a business to repay on time.
- Eliminates Collateral: One of the most significant advantages of capital loans is they are unsecured. In many types of loans, it is essential to pledge collateral to ensure the payment is made on time. Working loans can save you from facing such hassles as they are unsecured business loans.
- Easy access to finance: Reputed finance companies ensure that borrowers face the minimum documentation process. Once essential documents are submitted and verified, the loan is disbursed within three days. This has helped owners to get things done faster and overcome the finance issue.
- No Prepayment Penalty: The unsecured capital loan is payable partially or entirely before the tenure without facing the penalty. However, most lenders have no prepayment charges after the payment of 6 EMIs.
- Helps to Maintain Cash Flow: Irrespective of your business requirement, the working capital loan can help you with good cash flow for your business. In other words, your business will have stability and won’t face unexpected needs.
- Helps with the Line of Credit Facility: Another significant benefit of using capital loans is you get the facility of the line of credit, allowing you to withdraw the amount needed for the business purpose. Every month, you will only need to pay the interest amount and principal amount decided by the lender.
If you are keen on getting a working capital loan in India, then you should know the working capital loan eligibility criteria. Different lenders, NBFCs, and finance companies have different eligibility criteria. Make sure to check SME working capital loan interest rate as well. Some of the documents required are-
- Business identity proof
- Business PAN card
- Last two years of the audit report
- Personal identification details
- Incorporation and registration certificate
- Memorandum of Association and Articles of Association
- IT returns for the previous nine months
Reputed finance companies like ZipLoan will verify your documents and then disburse the loan within three days. Do prepare yourself according to the working capital loan requirements.
For small and medium-sized businesses, working capital loans and their types play a significant role. Connecting with the right finance company will help you to get a capital loan at the best interest rate and utilize it correctly. SME Loans are now easy with the help of finance companies offering it online. The ultimate aim of seeking these types of loans is your business will have a steady run without facing much of the debt and shut down due to lack of funds.