August 2, 2017
A Simple Guide to Understanding Working Capital Loans
Working capital loans are handy tools for your business to generate short-term finance to fund its immediate needs. Here’s everything you need to know about applying for it.
Do your liabilities exceed your current assets? Such issues may seem worrying, but are easy to resolve with a little extra help from external sources, such as Working Capital Finance. Working capital refers to the amount remaining after subtracting current liabilities from current assets. Current assets usually comprise stocks, inventory and cash. Current liabilities, on the other hand, are your financial obligations, including debt and accrued salaries. If your current liabilities exceed your current assets, your business may be at a risk of a short-term deficit. The primary goal of a working capital loan is to help you pay for these short-term expenses and clear your deficit.
How a Working Capital Loan Can Help Your Business:
1. Helps you raise short-term funds for your business: This is the primary and the most important benefit of working capital loans. They can be used to finance your business’ everyday financial needs like paying inventory costs, repaying short debts, and even tackling operational expenses.
2. Enables you to clear deficit: If the finance generated from your current assets is too less to meet the current liabilities, your business could be in a deficit. Working capital finance can enable you to clear this deficit by part borrowing and part liquidation of current assets.
3. Doesn’t require submission of collateral: A working capital loan is an unsecured loan that doesn’t require submitting any asset as collateral.However, in some cases, unsecured working capital loans may be subject to higher interest rates than other secured loans.
4. The loan amount can be used for any purpose: For these loans, there is no restriction over the loan amount usage. You can use the loan amount for any purpose as long as it is business-related. However, these loans are customised for usage of financing the working capital needs of a business.
5. Features a line of credit: Line of credit is a facility that allows the borrower more flexibility when it comes to borrowing money up to a limit and a tenor based on business needs. Bajaj Finserv offers this facility on working capital loans.
6. Easy application procedure: Applying for this loan is extremely simple. If your business meets all the eligibility criteria, you can have the loan amount disbursed in up to 24 hours. The documents that you have to submit would depend on the type of your business like partnership, sole proprietorship or public limited and private limited company. However, generally, you have to submit documents like certificate of practice or business proof, business vintage of 3 years, bank account statements and your personal ID.
7. Short tenors: Since working capital is a short-term need, working capital loans have a shorter tenor. Hence, repaying the loan can be a quick affair and you can make EMI payments faster.
If you are anxious about how to finance your working capital, worry no more. Bajaj Finserv offers low cost business loans for working capital that can be used to tackle your financial worries.