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Everything You Need To Know About Working Capital Loans


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Every business regardless of size needs a certain amount of working capital to make sure smooth business operation. Working capital is nothing but the funds or equity available to business owners to meet their short-term expenditure and financial commitments.

Various types of working capital are present in the business management in different names such as fixed working capital, net or gross working capital, etc. As it is the basic feature for any business, working capital is the fundamental requirement, which can never be compromised.

This is basic reasons why working capital loans are becoming regular finance products offered by the banking entity. It is one of the most demanded types of loans by small, medium, and large companies.

Different types of working capital loans.

Even though all enterprise is eligible to obtain working capital loans, the bank, as well as finance providers, will need company owners to meet some conditions based upon on their operation scale. Until now, they need a security deposit or guarantee to provide working capital loans. Some may need additional security and other prerequisites.

However, the working capital loan provided by the institutions will mostly depend on the company’s credit repayment history. At present, lenders are very comfortable with extending collateral free working capital loans to SMEs and micro businesses. Here is the list of common working capital loans available for business.

Short term loan: This loan is distributed at the fixed rate of interest for a predetermined payment period that is usually over 12 months.

Bank overdraft and loan facility: The terms and availability of this type of loan are completely depending on the company’s relationship with the lender. For this loan, the interest rate is 1 or 2 percent above the prime interest rate charged by the lender.

Account receivable loans: Being the most important and popular form of a working capital loan, this loan is the most sought out by the SMEs. This finance is the best choice for the enterprise that needs to meet expenditure like investing in the asset.

In India, plenty of banks and NBFCs licensed to provide working capital loans to businesses. SMEs would research parameters such as loan tenures, interest rate, security requirements, and repayment terms thoroughly before opting for a lender. This is because it will affect the way you conduct the business and larger credit requires in the future.

Benefits of working capital loans.

Working capital loans are one of the short-term financing options, which are used to cover wages, accounts, payables, and investments in short-term assets. Now, this loan is easily available to SMEs so that they can easily achieve the business targets. When your business grows, the financial needs also increase so you can use working capital loan for any situations. Check out the benefits of getting working capital loans.

  • Meets the short-term requirement as it has flexible repayment tenures
  • Eliminates the necessity of collateral
  • It make getting financing much easier than before
  • Maintains cash flow
  • Preserves business ownership