Your company needs consistent cash flow to run on a daily basis. However, there may be periods when your cash flow is greater than your turnover. You always have the option of a working capital loan as a fallback in the event that such a circumstance occurs.
What is a working capital loan?
Working capital loans are defined as loans taken out by businesses to pay for their ongoing operating costs. These loans are a great approach for firms to raise funds and concentrate more on their expansion. For addressing their financial needs, business owners in India are increasingly turning to work capital loans. These loans are typically used to pay for salaries, accounts payable, and other related expenses; they are not utilized to purchase long-term assets.
Small and medium-sized businesses can use this loan to increase their working capital requirements and cover everyday operating costs. The bulk of working capital loans is unsecured, while the riskier loans require some sort of security. Working capital loans typically last 6 to 12 months in our country, with interest rates varying depending on the lender from 11% to 16%.
However, it is crucial to establish your eligibility for a working capital loan before you start the loan application procedure.
Eligibility for working capital finance
Applicants age
When requesting a loan, the borrower must be at least 21 years old, and at the time the loan matures, the borrower cannot be older than 65.
Nature of business
The eligibility for working capital finance depends on the type of business. Anyone running a business that relies on consistent cash flows to sustain its working capital, including sole proprietors, partnership businesses, private or public companies, retailers, traders, or any other type of business owner.
Business turnover
The quantity of the business turnover would differ based on the lending bank selected.
Business vintage
The duration of the firm is another requirement for working capital loan eligibility. Your company should have been running successfully for the last two years, according to your books. But it varies from bank to bank.
Business experience
Your loan eligibility requirements are quantified by your business experience. In most circumstances, banks require a minimum of two years of operation at the existing location of the business.
Financial history
Over the course of the business’s years of existence, your company should have a steady and reliable financial history of profits.
Source of income
Your company’s revenue stream qualifies you for working capital financing as well. Whether it comes from the business income or investment income, every profit made by your company qualifies as a source of income.
CIBIL score
If you are a sole owner, entrepreneur, or self-employed professional, your CIBIL Score must be 700 or higher in order to apply for a business loan promptly.
Financial capability
The business’s ability to repay the loan, or the promoter’s ability to do so, is a crucial requirement for eligibility for a working capital loan. Your business’s financial efficiency, profit and loss statement, balance sheet, and other income tax returns assess your capacity to repay the loan and create an accurate image of the stability and profitability of the enterprise.
Creditworthiness
A crucial requirement for eligibility for working capital financing is the promoter and company’s creditworthiness. There shouldn’t have been any prior loan defaults.
Ownership
Ownership of a property, which could be a home, office, shop, or godown, is a crucial factor that banks take into account when determining a person’s eligibility for a working capital loan.
It is an easy process to apply for a loan once you are satisfied that you meet the requirements for a working capital loan.
