If you are a business owner, you must understand the importance of working capital and Working Capital Loans. Working capital is an essential aspect of every enterprise’s success as it is integrated with the enterprise’s day-to-day business activities and expenses. These expenses typically include payments to suppliers, salaries to employees, overhead expenses, and any other operating asset or liability.
Working capital requirement depends on the size and nature of the organization. Some factors based on which working capital requirement is calculated include the size of the business, industry, length of the operating cycle, profits and revenue, competitors, and growth rate. However, the goal of working capital remains the same. There should be enough capital to cover day-to-day expenses.
Importance of Working Capital
Working capital is critical for every enterprise for the following reasons:
- For measuring liquidity: The term ‘liquidity’ is used to measure the extent to which an enterprise can meet its short-term expenses with its current assets. Working capital gives liquidity and shows how effectively a company can use its assets. The revenues generated by a particular company and its ongoing operational performance serve as an indication of its financial health and projected profitability. This also improves your chances of getting a higher amount on Business Loans or Working Capital Loans. Lenders take liquidity into account to determine your repayment capacity and creditworthiness in case you are applying for a Business Loan.
- For maintaining cash flows: As working capital is required for covering daily operational expenses, it is important to have an adequate amount so that you don’t incur debt by selling your assets. In case you find yourself in a situation where you don’t have funds to cover short-term expenses, a Working Capital Loan will come in handy. It will help you avoid defaulting on fixed payments, such as salaries and supplier payments.
- For keeping emergency funds: Emergencies can strike anytime and can drain your finances. Certain external factors such as the general economy, shortage in raw materials, damage incurred from natural disasters, and fluctuating interest rates can give rise to additional expenses. In such cases, a Working Capital Loan can come in handy.
How to apply for a Working Capital Loan?
As there are various options available for business financing, it is important to be mindful of your requirement and opt for a loan accordingly. Before applying for the loan, keep the following things in mind:
- Evaluate your requirement
- Improve your credit score
- Include and consider extra costs
- Choose the right lender
Steps to apply for Business Working Capital Loan
- Step 1: Click on the dedicated page for Business Loans
- Step 2: Read the eligibility criteria and the list of required documents carefully
- Step 3: Click on ‘Apply Now’
- Step 4: Fill in the online Business Loan application form carefully
- Step 5: Upload soft copies of the supporting documents
- Step 6: Await confirmation and disbursal
Business Loan for working capital: eligibility criteria
| Criteria | Requirement |
| Age | The borrower should be 24 years old at the time of loan application and a maximum of 65 years old at the end of the loan tenure. |
| Business vintage | The borrower is required to have a business vintage of at least 2 years. |
| Annual turnover | The borrower’s business must have a minimum annual turnover of ₹6 Lakh. |
Documents required for a Business Loan
| Documents | Requirement |
| KYC documents |
|
| Business address proof | Utility bills/ rent agreement |
| Financial documents | Bank account statement for the past 6 months |
Conclusion
Advancements in business finance have made it possible for small business owners and entrepreneurs to get funds for their businesses when required. Various banks, lending institutions, and non-banking financial companies (NBFCs) are offering Business Loans at attractive interest rates. Before applying for the loan go through the eligibility criteria of lenders and compare the interest rates offered by them.
You can also use an online EMI calculator to calculate your monthly payments. This will help you in creating a monthly budget so that you don’t miss out on your EMIs.