One of our clients, Mr. Ashok bargains in Solar Panels. He as of late got an enormous order from one of the state governments. He will get some advance installment yet it won’t cover the initial investment in buying Solar Panels. Since, its an administration order, full installment is guaranteed after completion. Be that as it may, his biggest test now is to raise capital for next 3 months.
This is the place working capital loans can come handy. Mr. Ashok can take this short term loan, purchase his equipment and then replay the loan once he gets paid.
In this article, I will explain how to get working capital loans in India. Perused more to find out about eligibility criteria to get business loan, when you ought to consider this sort of loan and which sites can enable you to get it.
What Is A Working Capital Loan?
Working Capital Loan can be defined as a loan availed by the firms for covering their daily operational costs. These loans are the brilliant route for the businesses to wind up more centered around their development and generate capital. The working capital loans in India have turned out to be well known among the business proprietors for tackling with their financial needs. These loans are not utilized for buying long-term resources and by and large utilized for covering compensation, accounts payable and other similar operations.
This loan is applicable for the little and medium enterprises for augmenting their working capital needs and meeting the daily operational expenditure. The majority of the working capital loans is unbound, anyway the loans with high risks need some guarantee. The standard duration of a working capital in our nation is from 6 to 12 months, though the interest rate ranges anywhere between 11% to 16% depending on the lender.
When You Should Consider Availing A Working Capital Loan
The main reason for this loan is to finance the short-term operational needs of a company. At the point when a firm doesn’t have enough money on the hand for dealing with their daily costs, they for the most part go for the working capital loans. In simple words, these loans are the corporate obligation borrowings that are utilized by a firm for tackling with their daily costs.
There are heaps of companies in India who doesn’t have a stable income everywhere throughout the year.
They work on a cyclical sales display that relies upon the requirements of the retailer.
The majority of the retailers offers the greater part of their items during the festival season in India. The companies normally conduct the greater part of their production activities during the off-seasons to supply fulfill the demands during the pinnacle season.
Along these lines, when the pinnacle season arises, the manufacturing buys are decreased by the retailers since they focus on selling through their inventory and the manufacturing sales get minimized because of this.
The companies having this kind of working model regularly go for a working capital loan for paying the salaries and other daily costs during the off-season.
The companies repaid this loan when they hit the bustling season and don’t require financing anymore.
As mentioned over, the working capital loans are made for using a specific reason, i.e. dealing with daily business operations, anyway there can be some different reasons for borrowing money from a lender.
Examine the Best Reasons for taking a Working Capital Loan.
1) Seasonal sales fluctuations
It is the most common reason to take out this sort of loan. It pays the regular costs when the sales get moderate.
There can be a chance that businesses take out working capital loan before a bustling season for allocating their capital elsewhere.
2) Cash Cushion
The working capital loan can be valuable if the business doesn’t have adequate cash holds.
This guarantees that they have additional capital if there should be an occurrence of any crisis.
3) Non-steady cash flow
A few businesses set aside a longer period of time for paying invoices and that’s the reason their inventory sets aside a considerable measure of time for turning it over.
This sort of loan can be utilized for boosting the cash flow with the goal that they generally have the money at whatever point they need it.
4) For capitalizing on an opportunity
It can be quite frustrating to lose a big opportunity because of insufficient assets. A working capital loan can help a business proprietor in grabbing that opportunity by offering the required assets.
It can end up being useful for the business in the long run.
So if you possess a seasonal business and frequently confront risks and difficulties that create issues in your annual incomes, at that point you ought to go for a working capital loan.
These loans can absorb the passes up these risks as having enough cash flow is the way to progress.
It will not only cover your everyday operating costs yet additionally helps in investing later on operations of your business.
The working capital loan will assist your business with filling bigger orders by covering the cost of manufacturing and shipping the item.
It will convey your business until you get the installment for your order.
Advantages of Working Capital Loan
The working capital loans depend on the existing orders or outstanding invoices.
Accordingly, you can’t borrow more than the sum you know you will not have the capacity to pay back quickly, that eliminates the worries associated with an independent venture loan.
All things considered, one ought to dependably avoid taking loans as far as might be feasible yet this sort of loan has its very own advantages:
1) No need for any collateral
If you have a decent credit history, at that point you may wind up eligible for unbound working capital loans.
You don’t need to set up your inventory, business or any important thing for securing the loan. Be that as it may, the installment of the loan is critical as the banks will come after you.
2) Speed and Flexibility
One of the biggest benefits of working capital loan in India is that eligible firms can get short-term loans that include inventory loans, accounts receivable credit lines or bank lines of credit in a shorter period of time.
These loans are by and large flexible with varying reimbursement terms and interest rates, that assistance the firms with the seasonal fluctuations in smoothing out their cash flow.
3) Spending money at your discretion
By and large, the working capital loan has little to zero restrictions.
The only thing lender expects is that you are using the cash for increasing income or maintaining daily operations.
Kinds of Working Capital Loans
When you are looking for information on the most proficient method to get working capital loans, you should investigate its sorts and pick the one that suits your needs.
1) Trade Creditor
Trade creditor working capital loan is offered by a present or potential supplier.
He/She will all through check the credit history of your company before securing this sort of loan.
2) Bank Overdraft Facility
Your company’s relationship with the lender decides the interest rate and the maximum line of credit that you can receive.
One great benefit of the bank overdraft facility loan is that you only need to pay the interest that is applicable on the overdrawn sum.
Be that as it may, the rates are for the most part set over the prime rate of the bank.
3) Account Receivable Loan
The account receivable loans depend on the confirmed sales order estimation of a business. It is ideal for a company who require funding for filling a sales order.
Be that as it may, you need to be reputable and have a decent credit history for getting this sort of working capital loan.
4) Factoring or Advances
The Factoring working capital loan works in a similar manner as the accounts receivable loans, the only dissimilarity is that the estimation of the loan depends on the future credit card receipts.
This kind of loan is ideal for the businesses who acknowledge the credit card installments.
5) Short-term loan
A short-term loan accompanies a fixed interest rate for a maximum term of 12 months.
The business’ great credit history and relationship with the lender can enable them to get a short-term loan without securing any collateral.
6) Equity funding from investors or personal resources
This kind of loan is ideal for another business that does not have a decent credit history. Equity funding is for the most part obtained from personal resources.
Important realities you should know about the working capital loan:
The interest rate for a working capital loan by and large ranges from 12% to 16% and may differ from one bank to another.
The normal tenor of the working capital by and large remains 12 months and accompanies flexible collateral options.
Eligibility for working capital loan
If you are looking to apply for a working capital loan in India, you need to speak to a business that has been in operation for various years or your business ought to have a certain annual turnover. In any case, the requirements rely upon the kind of business you possess.
The following kinds of firms and the archives they needed to be eligible for a working capital loan :
- Sole Proprietorship
- Private and Public Limited Companies
Each funding institutions have their own parameters and you need to set yourself up according to that. Be that as it may, the basic parameters remain same for all the financial institutions. In this way, you need to connect with your institution for further assistance.
Top websites that can enable you to get working capital loans in India
1) Paisa Bazaar
At Paisabazaar, you can get the customized rate cites on the working capital loans instantly without much effort. Known as the first unbiased online commercial center for instant statements on credit cards and loans, this website can demonstrate to you a plethora of options from which you can pick one according to your choice. If you are looking for finish information about the working capital finance, at that point you should visit this website.
Begun in the time of 2007, the Biz2Credit is an ideal commercial center that can help you in arranging application for the working capital loan. Having more than 1,300 lenders and credible credit agencies, this website has turned into a confided in source in the Indian financial industry. They utilize a patented technology to offer the applicants bunches of options from which they can pick one.
3) Capital Float
Capital Float is a believed hotspot for getting complete information regarding the procedure on the best way to get working capital loans. They offer working capital finance for purchasing the inventory and manage the daily costs. You can apply for a working capital loan in a short span of time from the Capital Float.
All the major banks like SBI, HDFC, ICICI, Kotak and others offer business loans to SMEs. You can contact these private or nationalized banks and check your eligibility. If you are an existing current account holder, things will wind up easier for you.
5) IIFL Finance
IIFL Finance is a diversified financial company who offers working capital loans that can be utilized to manage daily costs without any tension. Here, you can get all the information regarding eligibility for working capital loans and how to fulfill. Simply visit their website and they will help you in the most professional manner.
6) Loan Meet
Loan Meet is a prevalent commercial center that works on a shared lending model. Through their website, you can connect with the best lenders regarding the working capital loan and inform them concerning your original requirements. You need to fill an online application that by and large takes up to 24 hours for endorsement.
7) Capital First
Capital First Ltd is a leading Financial Institution in India concentrated on providing obligation financing to MSMEs and Indian consumers. The company provides financing for various purposes like business expansion, loans for Plant and Machinery, Office furniture, display panels, office automation like PCs, workstations and printers.
8) Lenden Club
Lenden Club is one of the best shared lending platforms in India for the working capital loans in India. You can easily connect with lenders instantly offering loans at affordable rates on this website. They complete the majority of their verification online and spares borrowers time. They claim to provide loans in 18hrs.
9) Namaste Credit
Namaste Credit is a mainstream commercial center that connects the borrowers with the lenders using a safe and efficient lending platform. They will help you in choosing the right lender according to your needs for the working capital loan. The majority of the forums has positive reviews about the Namaste Credit on the internet.
Instakash is one of the best lending platforms in India with regards to the working capital loan. If you have a private venture and needs money immediately, they offer working capital loans within the period of 72 hours. Along with quick service, the platform only affordable charges from the borrowers.
Innoviti is an ideal lending platform for an entrepreneur. They assist them with cash flow by sanctioning little esteem unbound loans. During the previous year, they have disbursed more than 13,000 loans.
I-Lend is a wonderful distributed lending platform that connects the individual lenders and individual borrowers in India. Availing working capital loan from I-Lend will enable you to have a working capital loan at the attractive rates. You can have simple and bother free loans from this platform.
Faircent is an outstanding lending platform in India from where you can avail the working capital loan at lower interest rates. They will help you in legalizing the transaction with the lender by signing a formal contract. They make all the important provisions for finalizing the arrangements without any need of meeting the lender.
Lendingkart is a well known lending platform among the business proprietors because of instant documentation and flexible working capital loans in India. You can begin your simple procedure with the bank statements and VAT returns. They have a quick application and disbursal process.
15) TAB Capital Limited
TAB Capital is one of the best digital lending platforms who avail working capital loans for helping the private companies and business visionaries. They offer unbound business and personal loans to a niche market of budding industries, with tailor-made solutions for satisfying their financial requirements. They promise, quick processing for business loans, collateral free loans, zero pre-installment charges, flexible EMI and long reimbursement residency.
The business proprietors know about the way that sometimes the issue in dealing with the negative cashflow can kill the business and that’s the reason a little funding can be useful in resolving short term issues. The working capital loans can assist your business with functioning legitimately and efficiently. This kind of business loan can be one of the simplest techniques for protecting the credibility of a company.
Its wise to invest in a decent accounting programming since the beginning of your business as the greater part of the lenders will ask you financial reports from previous years. You can attempt ProfitBooks to manage your business finances. Its simple to utilize and can be utilized by non-accountants.