What is a Working Capital Loan?
A business of any size requires cash to operate on a day-to-day basis. In certain situations, there is insufficient revenue to pay bills or salaries for salaried staff, as well as to cover bulk inventories. That is where the working capital loan can make a difference.
A working capital loan is a short-term source of funds used to meet daily business operations, including paying suppliers, maintaining inventory during peak seasons, and other operational needs. As opposed to loans taken to purchase equipment or to extend your facilities, this kind of loan maintains day-to-day operations when you run short of cash flow.
How Does a Working Capital Loan Work?
A working capital loan serves as a bridge to address your business’s cash flow shortages. You borrow the amount of money all at once, or you get access to a credit line that assists you in meeting your daily expenses.
Business working capital loans are either secured (based on collateral) or unsecured (not based on collateral). The limit at which you can obtain is dependent on business turnover, account items, and the ability to repay.
Take an example where your store has to replenish itself before a festival or pay suppliers at a time when it is waiting to receive its customer invoices. A working capital loan, in such a case, will afford you the time to take care of these expenses and not have to worry.
Who is Eligible for a Working Capital Loan?
Among the most significant advantages of working capital loans are their flexibility and the fact that they are available to a wide range of businesses.
You may be eligible if you are:
- A small business owner
- A trader or wholesaler
- A retailer preparing for a seasonal spike
- An entrepreneur running an MSME
The lenders, such as NFS Loans, would usually require the age of your business, turnover, bank statements, tax return, as well as the profile of your credit history to determine the amount of the loan you can take.
Benefits of Working Capital Loans for Small Businesses
Working capital loans for small businesses are a lifeline when money is tight, but bills can’t wait. Here are some clear benefits:
- Easy day-to-day running: Pay suppliers, employees, rents, and bills on time.
- Ride the fluctuations of the season: Have a supply when demand is high.
- Retain ownership: You can maintain absolute ownership of your business, as opposed to having investors.
- Increase cash flow: Meet unexpected deficits without resorting to emergency funds.
- Flexible repayment: Many lenders offer adjustable loan terms that align with your business cycle.
MSME Working Capital Loan Explained
What is an MSME Working Capital Loan?
A working capital loan for MSMEs is a customized loan designed to meet the specific needs of micro, small, and medium-sized enterprises that are prone to experiencing cash flow gaps due to interrupted payments or seasonal demand fluctuations. Such loans are usually less demanding, less documented, and sometimes accompanied by government-supported schemes offering better rates for qualifying MSMEs.
Difference Between Overdraft and Working Capital Loan
Many business owners compare overdrafts and working capital loans, but they serve different purposes.
- An overdraft facility, with an approved limit, lets you make withdrawals exceeding the balance in your business current account. You pay a fee on what you borrow.
- A working capital loan provides you with a certain amount in advance, which you repay in instalments over the chosen period.
Both help you tackle short-term cash needs, but a working capital loan often covers larger expenses or planned needs that an overdraft alone may not.
How to Apply for a Working Capital Loan
Steps to Apply for a Business Working Capital Loan
Applying for a working capital loan with NFS Loans is quick and straightforward:
- Find out your eligibility: Age of business, turnover, and credit profile.
- Find the loan that suits you: Review both secured and unsecured options.
- Prepare all necessary documents: The required documents include GST returns, bank statements, identification proofs, and business registration certificates.
- Complete your application: Online, or by using the expertise offered by NFS Loan.
- Be matched to a lender: NFS matches you to reputed banks or NBFCs, in line with your business requirement.
- Access Your Funds: Your money is directly deposited into your business account once you are approved.
Tips to Get Approved Faster
- Maintain your bookkeeping records in a precise and organized manner.
- Keep a good standing credit history.
- The borrowing amount cannot exceed the customer’s repayment capacity.
- Consider refinancing your loan if it can help reduce your interest rate.
- Write down cash flow statements to indicate your plans on how you will use and pay the loan.
Final Thoughts: How Working Capital Loans Support Business Success
New to the market, a small shop or an old age MSME, a working capital loan may be the support you need to keep the business going smoothly when the times are not so bright.
At NFS Loans, we help you access the best business working capital loans, whether short-term solutions for immediate cash flow or trusted, long-term working capital loans for businesses or MSMEs.
Ready to keep your business moving without cash flow worries? Apply for a working capital loan with NFS Loans today and match with trusted lenders in minutes!