Your business may need funds during times when sales revenues aren’t enough to pay for the costs you incur. This can happen when your business is preparing for high seasonal demand and needs to hire extra staff or buy more inventories. It may also happen when revenue collections have been delayed, and you need to pay both your staff and your creditors. In such scenarios, a working capital loan makes for a convenient source of finance. You can use it to lease or buy machinery, update your products, expand operations or meet simple cash flow requirements for expenses like rent, raw materials and salaries.
Here’s how working capital loans can come to your aid:
1. They help you finance your needs quickly
Consider that you are a sweets shop owner. You may need finance to pay suppliers of khoa, milk, cream and ghee to ready your next batch of products for the festive season. Consider that you were waiting for the payment of a corporate Diwali order to come in, but because of incorrect paperwork, the payment is late. But, your sales revenue is insufficient to meet the expenses of raw materials. In such cases, you can immediately fulfill your cash needs by applying for a working capital loan.
The quick 24-hour approval and speedy disbursal of this loan ensures that you receive the loan amount directly in your bank account. This prevents you from experiencing the hassle of standing in long queues or going through a slow application and sanction procedure.
2. They are affordable to repay
Assuming that you have recently set up a new branch of your sweets shop, you are sure to have made several payments. From purchasing shop space to stocking refrigerators and burners, there is a host of expenses that you had to undertake. Unfortunately, due to faulty wiring, there was a fire in the kitchen that caused much damage. You have already spent a sizeable sum in opening a second shop and don’t have the financial bandwidth to pay for repairs. In such cases, working capital loans work well. They feature flexible tenor, simple prepayment options and nominal interest, making repayment affordable. So, you can use this loan without adding to your financial woes.
3. They don’t need you to put up your business assets as security
Your business’ assets, such as your central kitchen and delivery vehicles are key to its operations. So, you want to ensure that they are not at risk. Usually, this would be reason enough to stay away from taking a loan to finance your business needs. But, a working capital loan is collateral-free, so your assets are completely protected.
4. They give you flexibility
As a sweets shop owner, you are bound to have varying needs for finance. For example, during festivals, you need more raw materials, more cooks, gift boxes and baskets, and sales staff. While these needs may vary, you can use a single loan to pay for all of them. A working capital loan gives you complete freedom over how you can use the loan. If you find that you cannot predict the exact loan amount, you can also opt for a Flexi loan. This facility gives you the maximum amount of money you qualify for and allows you to borrow from it based on your needs. You can borrow multiple times within your tenor and even make part-prepayments at no charge. You will only have to pay interest on the amount you use, which makes this loan even more affordable. Also, to ensure that you can get the most of your loan amount, you have the option of repaying the principal at the end of tenor.
5. They are easy to qualify and apply for
This loan features simple eligibility criteria and asks for basic documents that will not be a hassle for you to arrange. Usually, all you need is to have a business vintage of 3 years and submit KYC documents like ID proof and address proof, proof of business, audited turnover of the past year and bank statements of the past two months. Since you can apply for these loans online, they are easy to apply for and don’t take up too much of your time either.
Additional read: Mistakes to avoid when managing working capital for your business
These five reasons give you a glimpse of why working capital loans are so useful for your business. Ensure that you identify any potential gap in your cash flow in advance, and select a working capital loan that suits your needs.
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