Working Capital Loans: What, How, and Where?

 

Introduction

Meera Reddy like other business owners understands the significance of capital. Irrespective of the size of the enterprise, capital is the most important aspect for running any business. However, cash flow does not always stay steady and there are lean phases when even savings are not enough to meet an urgent requirement. When it became a challenge to keep the show going and the lack of funds began to affect the daily operations of her fashion enterprise, Meera chose to opt for a Working Capital Loan. These short-term loans come in handy when you need immediate cash to manage the operational costs. Let us learn more about them.

What is a Working Capital Loan?

  1. Definition:

Any commercial firm has many costs to bear. It has to pay for rent for the office space, purchase inventory, pay taxes, get licenses, buy and repair machines, clear payment to suppliers, and give salary to staff among many other expenses. A business owner relies on healthy cash flow to be able to pay these expenses. A business is profitable when the revenue generated by the sale of the goods and services is more than the production cost. However, sometimes, payments are delayed or there is a cash crunch due to off-season or asset liquidity is not possible. During these temporary financial situations when you need capital to maintain stable operations, you can apply for Working Capital Loans. When you subtract the current liabilities i.e. the payments owed to others from current assets i.e. cash on hand and accounts receivables, you get to know your working capital. This difference, ideally, should be in the ratio of 2:1 for running the day-to-day business smoothly.

  1. Features:

  • Generally, these loans are not used for buying assets or making investments but strictly to meet day-to-day functioning costs.

  • These are financed quickly and in a hassle-free manner. Financial institutions offer flexible repayment tenures and interest rates to suit the diverse requirements of business owners.

  • They can be both secured (one that involves collateral) like invoice factoring and merchant cash advance and unsecured like a business line of credit, in nature. The latter, however, charges a steeper interest rate as the risk for the lender is more.

How can a Working Capital Loan Work for your Business?

A working capital loan meets all your short-term requirements and with flexible repayment tenures, the applicant can choose the repayment size comfortably. It helps maintain healthy cash flow by taking care of urgent or unexpected needs. With the facility of a line of credit, you can withdraw the amount that you want and pay the interest only on the amount withdrawn and thus, reducing the pressure of rising interest amount. It does not demand any equity transaction and therefore, does not put your proprietorship at stake. These loans, if repaid timely, will help build your credit score as well.

Where to apply for a Working Capital Loan?

We, at Hero FinCorp, understand your financial needs and have years of experience in helping businesses like Meera’s fashion enterprise meet financial requirements and see them grow at a great pace. Our eligibility criteria are quite simple. If you have been running the business for at least 3 years in public, private, proprietorship sector and can prove your profitability as per industry norms, you can apply for this type of loan. Your credit score will help you in getting better terms.

Our documentation and verification process is also fast and smooth. You need to submit audited financial statements of the last three years like balance sheets and IT returns along with business plans and future projections. Also, keep details about the profiles and KYC of directors, partners, shareholders in the company, the registration certificates, and other licenses, ready as they might be checked if needed.

Conclusion
When you start taking money out of your emergency funds, it means the company does not have enough working capital and it is becoming a challenge to meet operational costs. This can hamper the growth of the company. However, these cash crunch situations of can be easily managed with Working Capital Loans. They keep the business afloat during lean phases and are quite easy to avail if you have the right credentials. We, at Hero FinCorp, offer prompt customer services along with customised plans that will suit your financial needs.