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Working Capital
To manage the short-term needs of a business and fulfill everyday operational expenses, owners resort to a loan, known as the working capital loan. These loans are offered by a bank or a lender to help owners keep their businesses running smoothly without facing shortages in cash flows.Â
However, it is important to remember that working capital loans should be used wisely and only for their intended purpose. When used correctly, a working capital loan can be a great tool to help a business owner keep their business afloat.
The need for a working capital loan for new business can arise when a company is faced with decisions such as clearing debts, hiring employees, covering wages, or even closing rent. In such cases, these loans can provide the necessary funding to help a company meet its obligations and continue its daily operations. Moreover, you can ‘buy time’ with these loans, however, to be eventually repaid in set intervals at comfortable EMIs.
Unique Points & Features
No end-use restrictions
The loan obtained on working capital has freedom of expenditure. This means that the borrower can use the money to invest in the growth of the business without having to worry about disclosing or explaining the lenders on his end-use.
Zero collateral loans
Working capital loans are mostly unsecured or collateral-free loans. With short-term capital, the borrower will not be requested to submit collateral on the loan obtained, thus securing his assets.
Flexible withdrawal facility
The Flexi facility unlike term loans allows its customers to borrow loans on a cash limit that they can withdraw at their discretion and pay interest only for the amount used and not worry about the prepayment charges.
Pre-approval on loans
Working capital loans offer a pre approval facility on the loan. This means that the borrower can get a loan pre-approved and then decide where or how to use the loan.
Zero equity loan
The bank or the lender will not ask the applicant for any liability or hold on to their equity shares. Thus the business owner may possess full control over his business with no impact on his ownership or equity of the company.
Instant approvals
At loanz360, the process is fast and secure, with instant approvals and quick disbursals. You only have to submit minimal documentation and avail of a loan to address your entity’s immediate financial needs
Types
Type By EMI
Term Loan: A term loan is the entirety of the loan to be paid over the set intervals for the amount borrowed with interest in full.
Flexi Loan: Flexi loan unlike term loan has a cash limit. The borrower can withdraw any amount from the cash limit and may pay only for the amount used rather than the entirety of the available funds.
Balloon Payment: The borrower can repay relatively smaller during the course of the loan term and by a large at the end of the term, i.e maturity of the balloon loan.Â
Type By Loan
Packing Credit: Packing credit or pre-shipment finance is a type of loan given by lenders to sellers to finance their exporting demands against procuring the raw material to arrange the goods.
Cash Credit: Cash credit or bank overdraft is an extended credit facility used to fund instant cash requirements of a business up to a certain limit when the bank account is zeroed on pre-existing funds.
Letter Of Credit: LC or Letter of credit or bank guarantee is a formal document provided by a bank to the buyer of the goods and services that they may pay on their behalf to the seller if he fails to make the payments on time or defaults on the payments.Â
Line Of Credit: A line of credit provides a cash limit to the borrower against an unsecured policy that he may borrow, repay, and borrow again until he wishes to draw a line over the limit.
Bill Discounting: Bill discounting or invoice discounting are funds obtained against unpaid invoices. Discounting bills is a great way for traders to get short-term financing. The applicants may sell their unpaid invoices to the bank or a lender and get the money they need by paying only a small commission fee to avail of the service.Â
Post Shipment Finance: For sellers managing overseas buyers, the loan is granted when there is a gap between the date of shipment and the payment on the goods or services. To cover the costs incurred the loan is provided against the shipments already made.
Accounts Receivable: If you have a strong and reliable customer base, then you can take out this type of loan. Most lenders are hesitant to offer this type of loan because there is always a risk of default when it comes to invoicing payments.
Bridging Loan: It is a loan used to bridge gaps between financial obligations. This is a short-term emergency loan used to obtain immediate cash flow.
Invoice Factoring: With invoice factoring, businesses can sell their outstanding invoices or accounts receivable to a factoring company. This can help offset the impact of having unpaid receivables and help improve your business’s cash flow
Eligibility Criteria
Age: 21 – 65 years (Conditions Apply)
Type of Employment: Self-Employed/Business Owner(Govt, Partnership Firm, Large Enterprises, MSME, etc.)
Nationality: Resident of India
Income: Minimum ~ Rs. 2,00,000/- p.a onwards
Credit/CIBIL Score: Any profile(Credit score ~ 700 or above has a higher chance of getting a quick and instant loan with high funding at lower interest rates)
Employment Stability: 1 – 3 years and above (Business should not be blacklisted)
Note: The eligibility criteria mentioned above are generic and may vary from lender to lender. Please reach out to us at Loanz360 for a personalized eligibility chart.
Documentation
Note: Documents requested may vary from lender to lender, contact Loanz360 for any inquiry.
Proof of Identity and Address – Voter’s ID/Passport/PAN Card or Form 60/Driving License/Aadhaar CardÂ
Additional documents accepted for address proof include Electricity Bill/Ration Card, Copy of Utility Bill/Insurance Bond/Bank Statements/Income Tax Assessment Order/Property Registration documents/Pensioner Book/Property Tax Receipt/Employer Certificate
Income Proof Documents – Latest bank statements of the past 1 year/Copy of Income Tax Returns (ITR)/C.A certified Balance Sheet/Profit and Loss Statements/Ownership Proof/Business Registration Certificate/Partnership Deed(If applicable)/CMA – Credit monitoring arrangement (If required)
Additional Requirements: Duly filled application form/passport-sized photos
Charges & Interest Rate
CURRENT WORKING CAPITAL LOAN INTEREST RATES START @ 7.85% P.A ONWARDS. Compare interest rates and check more deals offered on working capital loans by our financial partners at Loanz360 in 2022.
Bank Name | Interest Rate (P.A) |
HDFC | 10.00% onwards |
IDBI Bank | 7.85% |
Indian Overseas Bank | 11.49% |
ICICI | 10.99% |
IDFC Bank | 11.69% |
Canara Bank | 9.20% |
Fullerton India | 17.00% |
IIFL Finance | 11.75% |
Axis Bank | 14.25% |
Bajaj Finserv | 17.00% |
Tata Capital | 19.00% |
Hero Fincorp | 26.00% |
Kotak Mahindra | 16.00% |
RBL Bank | 17.50% |
Shriram City | 15.00% |
Aditya Birla | 18.00% |
Yes Bank | 13.00% |
Note: Our financial partners are not limited to the above-mentioned banks. Contact Loanz360 to discuss options. The interest rates may vary subject to conditions.
FAQ
What is a working capital loan?
The working capital loan is a type of loan that is taken out by businesses in order to manage their short-term needs and everyday operational expenses.
Who uses working capital?
The working capital loan is a great option for businesses that are in a bind. By providing the necessary funds to keep operations going, the working capital loan can help a business get back on its feet. If you are a business owner in need of a short-term loan, the working capital loan may be the perfect solution.
Why is working capital loan for new business important?
Working capital loan for new business is necessary to keep their doors open and their operations running smoothly. Without a working capital loan, many businesses would quickly find themselves in financial trouble.
Is working capital loan for new business a good idea?
The working capital loan is a vital part of keeping a business afloat. It is a loan that is used to cover the day-to-day expenses of a business. This could include things like payroll, rent, utilities, and other operational costs.
Why is a working capital loan called a cyclical loan?
Working capital loans are usually short-term loans offered to help a business fulfill its financial obligations on a day-to-day basis. These loans are offered for a year, thus fulfilling cyclical business models during their low revenue periods.
Is working capital loan short term or long term?
The working capital loan is a short-term loan that is typically repaid within a year. For businesses that are struggling to make ends meet, the working capital loan can provide a much-needed infusion of cash. However, for long-term capital needs, businesses can opt for a term loan instead.
What is the difference between working capital and a term loan?
Working capital loans are short-term loans used to fulfill the daily expenditures of a business, while term loans are usually medium to long-term loans that can be used for a wide range of purposes.
What are the challenges of a working capital loan for new business?
Because the loan is short-term, businesses must be careful not to overextend themselves. If the loan is not repaid within the specified time frame, the business may be forced to declare bankruptcy.
What are the interest rates on a working capital loan for new business?
The interest rates on a working capital loan for new business may vary from bank to bank. However, most banks offer a loan between 12% to 35% depending on several key aspects of the business and its owner’s creditworthiness and relationship with the lender.
How do I know if I should take a working capital loan?
If your business is short on funds or is barely hanging in there to pay its operational expenditures, then the working capital loan will help the business gain strength by subsiding its short-term needs.
What charges are levied on my working capital loan?
A working capital loan is tax applicable and the charges levied on your loan may vary from bank to bank. However penal interests or penalties are levied on the loan if the borrower may default on their repayment. Other fees such as processing fees, foreclosure fees, part payments, etc depend on the bank’s existing policy.
Are all working capital loans collateral-free?
No. Most banks do not ask for collateral. However not all working capital loans are collateral-free. You can get both secured and unsecured loans on a working capital requirement.
What is a working capital loan on a balance sheet?
A working capital loan is a type of short-term business loan. Therefore, it is recorded as a liability on the balance sheet of the company in debt.
How do I escape fees on my loan?
If you want to avoid paying unnecessary fees on loans, Loanz360 will help you find a lender who is willing to work with you toward your end goals.
Can I get a pre-approval on the loan?
Working capital loans offer a pre-approval facility on the loan. This means that the borrower can get a loan pre-approved and then decide where or how to use the loan.
What is a zero equity in working capital loan?
The bank or the lender will not ask the applicant for any liability or hold on to their equity shares. Thus the business owner may possess full control over his business with no impact on his ownership or equity of the company.
