Easy to Get Working Capital Loan With NKB Kredit
Working Capital Loans: Where Business Ideas Blossom into Success
CA. Naresh Bansal
CEO & FOUNDER
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What is a working capital loan?
A working capital loan is like a financial safety net for businesses. It’s a short-term funding lifeline meant to cover everyday operating expenses—things like paying employees, covering rent, or restocking inventory. Essentially, it ensures that a company has enough ready cash to keep its wheels turning smoothly. Unlike loans for big projects or long-term investments, working capital loans focus on the immediate needs of a business. They’re flexible, adaptable, and can be used to navigate seasonal ups and downs or seize unexpected opportunities. These loans come in various types, including those backed by collateral or revolving credit lines, providing businesses with the liquidity they need to thrive in the short run.
Why do businesses need working capital loan?
Businesses often turn to working capital loans to keep their financial gears turning without a hitch. Imagine a scenario where a company needs to meet payroll, pay rent, or restock inventory, but the cash flow isn’t quite matching up with these immediate needs. That’s where a working capital loan steps in. It’s like a financial bridge, helping businesses navigate temporary cash shortages, seize opportunities, or handle seasonal fluctuations.
Essentially, it’s about ensuring there’s enough liquid cash on hand to handle day-to-day operations smoothly. This kind of funding flexibility is crucial for businesses facing unpredictable challenges or looking to make the most of sudden opportunities. Working capital loans act as a financial cushion, allowing companies to stay agile and responsive to the ebb and flow of their operational demands.
Why Working Capital loan is so important:
Working capital loan is a type of funding or credit that is given too many startups, enterprises or companies to run their day-to-day business. Working capital loans are short-term loans to meet immediate business needs and cannot be used to purchase long-term assets or for investment purposes.
The banking sector in the country is quite capable of providing various types of loans to its customers for their various financial needs. Keeping their needs in mind, working capital loans are offered to meet the financial needs of companies, business owners, for MSMEs, for startups and self-employed professionals. So, in this blog we will discuss all the aspects related to working capital loan like the process, advantages, and disadvantages of working capital loan.
Who offers working capital loans?
Businesses seeking working capital loans have several options, and these loans are offered by a range of financial institutions. Traditional banks, including major national and local banks, are common providers of working capital loans. They often have established lending programs tailored to meet the short-term financial needs of businesses.
Credit unions, which are member-owned financial cooperatives, also offer working capital loans to their business members. These institutions may provide a more personalized approach and competitive rates.
In recent years, online lenders have become increasingly popular for working capital loans. Fintech companies and online lending platforms offer a streamlined application process and faster approval times compared to traditional banks. Small and medium-sized businesses often find these online options convenient and accessible.
Government-backed lending programs through agencies like the Small Business Administration (SBA) in the United States also provide working capital financing options for qualifying businesses. These programs aim to support businesses, especially during challenging economic times.
Ultimately, businesses can choose the source that best aligns with their needs, considering factors such as interest rates, terms, eligibility criteria, and the speed of fund disbursement. It’s advisable for businesses to carefully evaluate their options and select a reputable and reliable lender for their working capital requirements.
Eligibility Criteria for Working Capital Loan
If you are running an MSMEs and want to apply for a working capital loan in India, you must represent a business that has been in activity for several years or your business must have a certain annual turnover (as determined by the bank Defined) or NBFC). However, these requirements depend on the type of business you own. Working capital loans are broadly offered to MSMEs, partnerships and private and public limited companies.
Documents Required for Working Capital Loan
Documents required for Working Capital Loan – PAN Card, Passport size photo( recently clicked) , address and income proof, ITR and income information of last 3 years, CMA (Credit Monitoring Arrangement) report if business turnover is more than Rs 5 crore, Audit report of last 2 years, Partnership Agreement, Registration Certificate, Corporation Certificate, Name of all current directors on company letterhead, Memorandum of Association (MoA) and Articles of Association (AoA), loan statements from all banks in the last one year, etc.
How many types of working capital loans we can avail?
There are many types of working capital loans available in the Indian market. Working capital management is for the day-to-day needs of an entrepreneur. Therefore, they are divided into different types so that one can avail it as per their needs. Here are 10 different types of working capital loans:
Trade Credit: This is a type of loan, when the supplier of a business gives supplies to the business on the condition of buying now and paying later, it is called trade credit. In this, businesses take supplies and pay for them after some time.
Cash Credit: These are the most important and most widely used types of working capital loans used by SMEs. This type of cash facility is provided by commercial banks. One of the biggest benefits of availing this loan is that this loan works like a credit card in that the borrower pays interest only on the amount utilized.
Short-Term Loan: Conversely, a short loan comes with a fixed interest rate and repayment period. This is not a line of credit, but a full loan. It is important to repay the loan along with interest on time. The period is determined by the bank or institution.
Bank Overdraft: Bank overdraft is also called cash credit. This feature is taken advantage of by most businesses; the business is given a loan amount limit, within that limit the business can withdraw any amount.
Factoring: These loans are similar to accounts receivable. Under this also, the business or company takes a loan by mortgaging the bill payment receipt with the bank, and at the stipulated time, the buyer pays the bill receipt to the bank instead of the business. However, the basic difference between the two is that in factoring, the buyer is responsible for non-payment of the loan, whereas in accounts receivable financing, the business or company is responsible for non-payment of the loan.
Bill Discounting: The most common task of any business is to generate bills. This bill is a proof that the business/company has sold its goods or services to the buyer and on the basis of this they take money from the buyer. Banks give loan to the business/company on the basis of this bill, but the loan amount is less than the bill receipt amount, at the stipulated time the bank collects the payment of the bill from the buyer. If there is a delay in loan payment, as per the terms, the business or buyer pays interest to the bank on this delay.
Bank Guarantee: Under this, the bank gives a guarantee to a third party on behalf of the business/company that if the business/company is unable to pay for the purchased goods or repay the loan taken on time, then the bank will make the payment. The bank pledges some of the property of the business/company to guarantee that if the business/company does not make the payment, the bank can make the payment by selling the property. Let us tell you that the guarantee given by the bank is less than the value of the mortgaged property.
Equity Finance: This type of working capital loan is usually taken against the home from investors, friends and family. This is a good option for businesses that have just started. Additionally, it may be the most realistic solution for paying bills and raising capital initially, since the new company does not have a credit record on which to base other loans.
Benefit of Working Capital Loan :
Working capital loan has a tenure between 9-12 months and is a relatively short term loan. Due to the short repayment period of the loan, the borrower will not have to pay much interest. Working capital loans are offered as short term loans for new businesses.
Financial Difficulties: Even if your business is flourishing and has lots of fixed assets, it cannot be said that a financial crisis cannot occur. In such a situation, there can be no better option than a working capital loan, so that you do not have to stop important business activities due to financial difficulties and you are able to fulfill your responsibilities on time.
No guarantee required: Unlike most other unsecured business (or even personal) loans, availing a working capital loan from a bank or non-banking financial company (NBFC) does not require any guarantee or collateral. Not there. If you have a good credit history, you may be eligible for an unsecured working capital loan.
Helps in tough times: If you are running a business that makes huge profits only in a particular period of the year and may suffer losses the rest of the time, then you should go for a working capital loan. In such difficult times, this loan can provide you enough money to run your business.
Spend at your discretion: The biggest feature of a working capital loan is that there is no limit on its spending. By taking this loan, it can be used for any type of expenditure of your business.
How We can help empowering businesses with Working Capital Loans?
NKB Kredits working capital loan is a trusted partner, in the world of Working Capital Loans. They provide customized solutions to businesses looking to enhance their efficiency and fuel their growth. It’s worth mentioning that NKB Kredits working capital loan truly understands the requirements of businesses and has developed a user platform, accessible at working capital loan to simplify the application process, for Working Capital Loans.
Our Process
Visionary Roadmap: We go beyond numbers, delving into your long-term vision. Your stakeholders’ aspirations, your business’s growth trajectory – we map it all out, ensuring your working capital fuels exactly what you envision.
No more collateral constraints, just expert guidance and creative exploration. We tap into a vast network of lenders and government MSME promotional schemes, hand-picking the perfect fit for your specific needs and aspirations.
We’re your funding bridge-builder, connecting you with Nationalized Banks, Private Banks, NBFCs, and other Financial Institutions. No more knocking on doors, let us open them for you!
We’re not just your funding fairy godmothers, we’re your long-term business allies! Our journey with you extends beyond securing the perfect working capital loan. We offer invaluable support in 2 key areas:
- Post-Funding Compliance: After the confetti settles, let us handle the paperwork dance! We guide you through the due reporting and surveillance review processes required by financial institutions, ensuring everything runs smoothly and efficiently.
- Ongoing Business Optimization: Your success is our mission. We stay by your side, offering financial expertise and strategic insights to help you optimize your operations and make the most of your newly acquired funds.
The significance of working capital loans in India
The significance of working capital for businesses cannot be emphasized enough. It serves as an indicator of companys efficiency and term financial well being. Insufficient working capital can lead to missed opportunities, strained relationships with suppliers and disruptions, in operations. On the hand maintaining sufficient working capital empowers businesses to seize growth opportunities, handle expenses and navigate economic downturns successfully. In the changing market dynamics of India having working capital provides a strategic advantage by enabling businesses to capitalize on emerging trends expand their product offerings and invest in marketing endeavors.
When do capital loans prove beneficial for us?
Capital Loan is beneficial for us in many ways.
- Short term Solution; Working capital loans are designed to be repaid within a period of 9 12 months making them a viable short term financing option. Due, to the repayment duration borrowers can avoid paying interest charges. These loans are particularly beneficial for new businesses seeking term assistance.
- Addressing Financial Challenges; Even if your business is thriving and has fixed assets unforeseen financial crises can still arise. In situations opting for a working capital loan becomes a choice as it allows you to sustain essential business operations without disruptions caused by financial difficulties. This ensures that you can meet your obligations promptly.
- No Collateral required; unlike unsecured business or personal loans obtaining a working capital loan from either a bank or non banking financial company (NBFC) does not necessitate providing any collateral or guarantee. Long as you have a credit history you may qualify for an unsecured working capital loan.
- Support during Challenging Periods; If your business experiences profits during specific periods of the year while facing potential losses at other times acquiring a working capital loan could be highly beneficial, in smoothing out cash flow fluctuations and ensuring stability throughout the year. During these times this loan can offer you the funds to sustain your business operations.
- Feel free to spend as you see fit; One of the advantages of a working capital loan is that there are no restrictions, on how you can use the funds. By obtaining this loan you have the flexibility to allocate it towards any expenses your business may have.
How to calculate working capital Loan?
Calculating working capital is straightforward. Subtract a company’s current liabilities from its total current assets:
Current Liabilities (−) Total current Assets=Working Capital
For instance:
Current Assets of a Company
– Cash: ₹20, 00,000
– Account Receivable : ₹15, 00,000
– Inventory: ₹45, 00,000
– Total: ₹80, 00,000
Current Liabilities of a Company
– Account Payable: ₹25, 00,000
– Short Term Loan: ₹5, 00,000
– Accorded Liability: ₹10, 00,000
– Total: ₹40, 00,000
Working Capital: Current Assets – Current Liabilities
₹80, 00,000 – 40, 00,000 = ₹40, 00,000 (Working Capital)
Frequently Asked Questions (FAQs)
Loans for working capital function similarly to many other kind of loans . Your company has the option of taking out a line of credit or borrowing money in full. The money is subsequently repaid, usually over a brief period of six to twenty-four months. The lender may occasionally request payments on a bimonthly, weekly, or even daily basis.
Financial evidence includes the latest two years’ income tax returns as well as the balance sheet, income, and profit and loss account computations. in addition to the preceding six months’ bank statement and the preceding three years’ audited financials. Balance sheet audited by the CA over the last two years, GST Challans, and Tax Audit reports.
Lenders vary widely in who offers working capital loans. People frequently start their search at banks and credit unions, although certain specialist internet lenders also provide loans. If you require substantial amounts of borrowing, you may also want to think about an SBA loan. Examine the characteristics offered by several lenders before selecting a working capital loan.
Working capital = current assets – current liabilities.
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