Working Capital Loan is a type of short-term loan availed by firms for their daily operational expenses. They support the businesses to become more focused on their growth and generate capital. These loans in India have become popular among business owners to deal with their financial needs. These loans are not used for buying long-term assets. Generally, it is used for short-term capital expenditures. For example payment of wages, rent, debt service payments, or to finance activities, such as sales and marketing or research and development, etc.
Understanding what working capital to a business, is the core of an organization. It is the cash in hand if the assets outweigh its liabilities, that organization has working capital.
The loan is appropriate for small & medium enterprises. Likewise, for boosting their working capital needs and meeting the daily operational expenditure. The duration of a working capital loan in our country is from 6 to 12 months. The interest rate ranges from 11% to 16% depending on the lender.
What are the Benefits of a Working Capital Loan?
Working capital loans are fast and easy to secure. To address any urgent financial needs of the business. The loan amount will be received all at once in a lump sum. It increases the impact of the funding. Understanding the benefits of a working capital loan:
1. Short-tenured Loan
The repayment period is 6-12 months for these loans. This makes the loan of relatively shorter duration. Lenders offer short-term loans in the form of these loans to new businesses to fulfil small business operations.
2. Handle Financial Difficulties
Nothing can be better than a working capital loan if you find your business lending in a financial crisis at times. Poor working capital leads to financial pressure on a company. Increased borrowing, and late payments to creditors – all of which result in a lower credit rating. Banks charge a higher interest rate for any money borrowed if they possess a lower credit rating.
3. No Collateral Required
No security or collateral is required to avail a working capital loan from a bank or non-banking financial company (NBFC). The bank will check and verify your credit history. If satisfied, then you may become eligible for unsecured working capital loans for a fixed tenure to pay it back.
4. Helps in Lean Periods
You probably face risks and challenges if you are running a seasonal business. Which creates problems in your annual revenues. These loans can help you to overcome the blasts created by the lack of sufficient funds.
5. Spend at Your Discretion
There are no restrictions on how to use the funds in working capital loans. You can use the money for all your business requirements. Though, use the money for valid needs only, to ensure that your business does not depend solely on credit to manage expenses.
Also Read: Different Types of Working Capital Loan
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