Working capital loan
Working Capital Loan
A business needs some capital to buy land, machinery, and other assets. This capital is called fixed capital. However, once a business starts production, it needs some capital to support its day to day activities. These activities are very critical to ensure the smooth working of the business. The funds required to meet these requirements is referred to as Working Capital.
To ensure regular production, a business needs a steady supply of raw materials, pay salaries to their employees, pay for utilities, and keep provision for incidental expenses. Businesses often do not have enough cash in hand or liquidity to meet these requirements.
In such cases, the business may take a loan from banks or NBFCs to support their daily needs. Such a loan is called a Working Capital loan. The critical thing to note is that businesses are not allowed to use this amount for making any investment or buying long-term assets.
Features Of Working Capital Loan
- Reasonable Interest: Depending upon the credit rating, the interest rate varies from 1% to an average of 2% per month, which is quite fair.
- No Collateral required: The loan is provided against confirmed business. The lenders are assured of getting their money back. So, they do not ask for any collateral security before extending the loan.
- Processing fee: There are no hidden costs or charges. The only cost charged is a one-time processing fee, which is 2 to 3%
- Flexible Repayments: As per their convenience, the business can choose any repayment options, which can be weekly, bi-weekly, monthly, or one-time full payment.
- Preserve your ownership: Working capital loans allow you to raise money without diluting your company’s ownership.
- Quick Processing: The process does not require much documentation and is mostly online. There is no need to visit physically or wait in queues. Hence, the processing is fast, and the loan is approved and sanctioned within 36-72 hours.
Benefits Of Working Capital Loan
- Enhanced Cash Flow: Working capital loans provide businesses with the necessary funds to cover daily operational expenses, such as rent, salaries, and inventory purchases. This can be particularly useful during off-seasons when sales are low or when clients delay payments.
- Maintains Ownership: Unlike equity financing, where you might have to give up a portion of your business to investors, working capital loans do not require selling a stake in your company. This means you retain full control over your business operations and decision-making.
- Quick Access to Funds: Many lenders offer working capital loans with a quick approval process, allowing businesses to access funds rapidly. This can be crucial for addressing immediate financial needs or taking advantage of time-sensitive opportunities.
- Flexibility: Working capital loans often come with flexible terms and conditions, including repayment schedules tailored to the business's cash flow patterns. This flexibility can help businesses manage their finances more effectively without straining their resources.
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