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WORKING CAPITAL LOAN
A Working capital loan is a loan that helps in financing day-to-day operations of a company. This loan comes handy when a company require funds for short-term operational needs. When a firm doesn’t have enough money on the hand for dealing with their daily expenses, they generally go for the working capital loan. As stated above, reason for availing working capital loan is basically for dealing with daily expenses, however there are some other reasons as well:
- In case of Fluctuation in sales due to seasonal nature of business.
- In case the businesses don’t have adequate cash reserves.
- In case of non-steady cash flows of the company. (In some organisations it takes a longer time to convert their inventory to cash, thus results in non-steady cash flows)
- In case of new opportunity comes to company, thus to grab the opportunity the company can take working capital loan in case of shortage of funds.
Advantages of Working Capital loan
- No restriction of spending for a specific purpose. The lender expects to spend the money for the maintaining daily operations of the business.
- No need of collateral security. Only in case you have a good credit history, then you may become eligible for unsecured working capital loan.
- Speed and flexibility of the process of sanction. The process for this type of loans takes very less time to get completed.
Eligibility for Working Capital loan
The Lender checks the credit worthiness of the customer, for this they check reliability and repayment ability of the customer by looking at the past financial history and other business records.
The following are some important things one should ensure before applying:
- Must keep a favourable credit score (CIBIL score) i.e. between 700-900 points.
- Ensure that you meet the eligibility criteria, loan requirement and have all the necessary documents ready.
- Must maintain the database of the company’s financial situation and past performance along with its cash flow statement.
The working capital loans can help your business in getting short term credit to function properly and efficiently. This type of business loan can be one of the simplest methods for protecting the credibility of a company.