2 min read
26 May 2021

A working capital loan can help your business continue its daily operations without any hindrance. You can use it to pay everyday costs with ease. To make the best use of a working capital loan, read the answers to the most commonly asked questions.

1. What is a working capital loan?

A working capital loan is money borrowed to finance the day-to-day operations of the business. This includes fixed, regular expenses such as rent for the factory shed and office, salaries and wages, office expenses, security costs, etc. A working capital loan is not usually used to buy assets or to make investments. However, there are no restrictions on how you use a working capital loan once it is sanctioned to you.

2. Why should I consider it?

Although your business may be running smoothly, there will be lean periods when it won't have the cash to cover immediate or short-term costs. This could be because of delayed payments or unplanned expenditure. In these times, a working capital loan will help you meet daily expenses.

Further, to grow your business, you will need to hire more people and a larger space to operate from. This leads to an increase in your expenses that needs to be met up-front. A working capital loan can help you grow your business without financial concerns.

Additional Read: How To Ensure Your Business Never Runs Out Of Working Capital

3. How soon can I get the funds?

Depending on your loan provider, you can get your working capital loan in as short a time span as 24 hours after you submit the required documents.

4. Do I need to nominate a guarantor or attach security to quality for this loan?

Usually, working capital loans are unsecured loans. So, you can avail working capital without pledging any collateral. Further, no guarantor is required.

Additional Read: The MSME Loan The Efficient Financing Solution for MSMEs

5. How does a Flexi loan facility help me finance daily business operations?

A Flexi loan facility is a facility where you do not get a lump sum of money. Instead, you get assigned a loan limit. You have the freedom to withdraw money as and when you need it up to the loan limit and within your chosen tenor.

This is especially helpful for small and medium enterprises, where there can be an immediate need for money from time to time. This can be caused by various reasons such as a delay in receivables.

In these situations, when there is a strain on the cash flow of the business, you can withdraw money from the this facility to ensure that your firm continues to run smoothly. Since you only pay interest on the amount you utilise, this also helps you save money. Secondly, you can also choose to pay interest-only EMIs, and pay off the principal at the end of the tenor, coinciding with when your business receives payments.

6. What are the eligibility criteria for this loan?

The eligibility criteria for a working capital loan are as follows.

  • You must be a self-employed individual, who has been running a business with a vintage of 3 years
  • Partnerships, limited-liability partnerships, private limited companies, and closely-held limited companies are also eligible to apply
  • Other applicants, depending on their profile, are eligible on a case-to-case basis
  • Apart from this, you must be an Indian national

7. What are the charges associated with a working capital loan?

Apart from a nominal interest rate, this loan has no charges for making part prepayments or requesting a loan, interest or principal statement. Processing fee is usually around 2% and the EMI bounce charges are around Rs. 2,500. Lastly, penal interest is charged at 2% per month.
Ensuring your business has sufficient working capital not only helps your daily operations continue without a glitch, but also fuels growth.

Additional Read: How working capital helps your business stay agile

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