Hidden Things You Should Know About Working Capital Loans

Importance of working capital loans

Working capital is the amount of money a business uses for its day-to-day activities. Without free cash flow from the business, industry prosperity could be at risk. A working capital loan is a type of business loan that can cover a company’s short-term financial obligations and business. It is not intended to fund business investment or equity goals. Simple obligations may include daily expenses, purchases of goods, and monthly administrative payments through inventory management. These are just a few of the company’s short-term operational needs. Your immediate needs can be met with the help of working capital loans, giving you more time to prepare and focus on your long-term goals.

When should I apply for a working capital loan?

Working capital loans are primarily targeted at small and medium-sized businesses, as loan terms typically range from 6 to 48 months. This period currently varies by bank. Financial institutions calculate interest on working capital loans in the same way. According to Reserve Bank of India (RBI) standards, the loan balance granted varies from bank to bank. Business turnover is a parameter in determining loan size.

Characteristics of Working Capital Loans in India

Loan amount

Working capital loan amounts vary according to the company’s needs, expertise, and duration and are tailored to the company’s specific payment obligations.

The interest rate

Working capital loan interest rates vary from account to account and depend on the needs of the lender.

Collateral

It is not guaranteed that working capital loans will be guaranteed. This means that you may have to fill out a deposit slip to receive your loan. Land, stocks, metals, commodities, and even companies can be used as collateral. Banks tailor working capital loans to the collateral availability of borrowers. For unsecured working capital loans, the creditor will look at your credit history.

Refund

The mortgage payment process aligns with the cash flow statement.

The age factor

Another point to consider is the age criteria for applying for a mortgage. Debtors must be between the ages of 21 and 65.

Hidden Fees

Banks charge a service fee when you apply for a working capital loan, and different banks charge different fees.

What types of working capital loans are there?

Banks often deal directly with working capital loan types. These are all:

• Overdraft or cash advance facility
• Loans for a specific period
• Bank Guarantee
• Package credit
• Letter of credit
• Mortgage of receivables
• Mailing finance

Important Standard Requirements for Working Capital Loans

• Documents Required- 1. A PAN card owned by a single partnership company.2. Identification document: voter ID, passport, driver’s license, or Aadhaar card.3. Proof of personal address: passport, utility bill, phone bill, and Aadhaar account number. 4. Proof of residential and business ownership.5. Proof of Ownership: financial records, tax returns, and tax disputes for the last three years.6. Registration confirmation: Partnership Agreements, Articles of Incorporation, and Registration of Business Places.7. A loan planning letter for existing loans.8. Photos of the candidateThere are some things many people don’t know about working capital loans and how beneficial they can be during difficult times.
• No full credit is required: Unlike personal loans, creditworthiness is irrelevant when applying for a work loan. Many lenders know that business can drop more slowly than usual. For this reason, they encourage entrepreneurs to apply for working capital loans. Even with imperfect credit, you may be able to obtain the funds you need to continue your business. 
• Working capital loans can be approved faster: Applying for a loan is a little different than applying for a traditional line of credit. Business loans have fewer approval limits, so lenders may approve them in just a few hours. This means your loan is approved and your funds are available in just one business day. Your lender may be able to deposit your working capital directly into your account. 
• Applying for a working capital loan is not that complicated: Working capital loans have fewer requirements than other types of loans. When applying for a business loan, you may only need to show six to nine months of active business history. This is beneficial for new businesses that may feel ineligible for financing because they are new to the business. A solid business history is important, but certain lenders require a much shorter period of documentation. 
• Other payment options: Lenders that offer working capital loans usually offer multiple repayment options. Instead of making large monthly payments, you can choose small amounts that are deducted directly from your daily sales total. Lenders can also make payments automatically. This means no late fees, and in some cases, a fee or two can be waived. If you can make additional monthly payments, you may be able to pay off your loan early. However, be aware that not all lenders are the same. You may not be able to repay or settle your loan before the final scheduled payment. 
• No collateral required: Not all small business loans require collateral to be provided to cover the loan amount. If you don’t need collateral, it’s important to read the entire loan agreement before signing. If you don’t understand something, now is the time to ask. If you own a small business and are short on cash, look for readily available lenders. Understanding how working capital loans work can help you find the right loan for your needs from the right lender. Even if you think you might not qualify, remember that it’s easier to get a working capital loan if you’ve only been in business for a short time. Visit Piramal Finance today to learn more!