In the dynamic business world, effective management of working capital is crucial for maintaining smooth operations and facilitating growth. Working capital refers to the funds available for day-to-day operations, covering expenses such as salaries, inventory, and supplier payments. However, businesses often encounter financial constraints due to seasonal fluctuations, unexpected expenses, or slow receivables. These challenges can impede everyday operations and hinder expansion efforts.
In such situations, securing a working capital loan becomes essential. Let’s explore how to fulfil your working capital requirements with an unsecured Business Loan to ensure seamless operations.
Calculating Your Working Capital Requirement
A company’s working capital indicates its short-term liquidity to fulfil short-term expenses, signifying its operational efficiency. Therefore, calculating the working capital requirement (WCR) is essential to understanding your financial standing. It gives a clear picture of the company’s liquidity and highlights areas that require attention.
A company’s WCR shows the amount of finance required to cover the expenses related to the production cycle, debt repayments, and upcoming operations. It determines the amount needed to bridge the financial gap between supplier and consumer payments. The formula to calculate the WCR includes the following components:
- Accounts receivable
- Inventory
- Accounts payable
The formula for calculating the working capital requirement is as follows:
WCR = Inventory + Accounts Receivable – Accounts Payable
Understanding a Working Capital Loan
A working capital loan is an unsecured loan businesses borrow to finance their day-to-day operations. Whether you need funds to expand your business, cover accounts payable, pay wages to employees, or increase gross working capital, this loan can provide the required funds to meet your financial requirements and operations. With a working capital loan, you can meet your short-term needs and have more flexibility to focus on long-term business goals.
How Does a Working Capital Loan Help?
Now that you understand what a working capital loan is, let’s see how it helps a business:
- Ample Loan Amount: The loan amount you borrow depends on your working capital requirement. Top online lending institutions like Hero FinCorp offer Business Loans of up to Rs 40 Lakh at attractive interest rates.
- Competitive Interest Rates: Due to the high demand for working capital loans in the market, lending institutions offer competitive business loan interest rates based on the borrower’s eligibility and credit history.
- No Collateral Requirement: You don’t need to pledge collateral to obtain a working capital loan. Lenders approve these loans based on your financial statements, tax returns, credit score, and business vintage.
- Flexible Repayment: You can choose a loan repayment tenure suitable to your business cash flow.
- No Usage Restrictions: A working capital loan offers flexibility with no usage restrictions. You can utilise the funds for various business-related purposes, such as inventory restocking, marketing efforts, purchasing or upgrading equipment, and improving overall liquidity to support daily operations.
Calculate Your Eligibility for a Working Capital Loan
Before applying for a working capital loan, check your eligibility to avoid rejection. To seek an unsecured Business Loan from new-age NBFCs like Hero FinCorp, you must fulfil the following eligibility conditions:
- Age: Minimum 25 and maximum 65
- Nationality: Indian citizenship
- Occupation: Self-employed professionals like CAs, doctors, architects, and Company Secretaries; self-employed non-professionals like retailers, traders, sole proprietors, manufacturers, and service providers; and entities like LLPs, partnership firms, private limited companies, and trusts are eligible to apply.
- Business Status: At least five years in the current business
Prepare the Required Documents
Besides meeting the eligibility criteria, you must provide the following documents to support your application:
- Duly filled application form
- PAN Card
- Identity Proof: Voter ID Card/ Photo ID issued by GOI/Passport/ Driving Licence/Aadhaar Card or any other government-issued ID proof
- Address Proof: Aadhaar Card/ Voter ID Card/ Property Tax Receipt/ Driving Licence/ Utility Bill/ Registry Copy/Property Tax Receipt/ Lease or Rent Agreement
- Business Continuity Proof: Certificate of incorporation VAT/ Excise/ Sales Tax/ Service Tax Registration, Trade License/ Copy of partnership deed/ Registration Certificate issued by RBI or SEBI/ Certificate of Practice
- Signature Proof: Banker’s Verification/ Passport/ PAN Card
- Income Proof: Latest ITR, GST returns for the financial year, Latest audited financials, Last 6 months’ bank statement
- Other Documents: Profit and loss statements, balance sheets, and tax returns for the past few years to showcase your business’s financial performance
Stepwise Procedure to Apply for a Working Capital Loan
Here is a stepwise procedure to apply for a Business Loan for working capital:
- Choose the Right Lender: Depending on your eligibility and requirements, you must choose the right lender that fulfils your expectations. Check the loan amounts, interest rates, repayment terms, customer service, and other terms and conditions.
- Check Your Credit Score: Loan providers prefer business owners with a decent credit history. A good credit score reflects timely debt repayments, making the lenders feel safe in approving your loan application. If you have a poor credit rating, focus on improving it before applying for a loan.
- Calculate the EMI: You must calculate the EMI before finalising a loan plan to ensure you can repay it on time. The longer the tenure you select, the smaller the EMIs will be, but the interest cost will be higher. An EMI calculator helps select a loan term with easily affordable EMIs.
Once these things are set, follow these steps to apply:
- Visit the Business Loan page on the lender’s website.
- Click Apply Now to fill out the required details and upload the relevant documents.
- Specify the desired loan amount and tenure.
- If your information meets the eligibility criteria, you will receive a reference number for future reference.
- A representative will contact you for additional information.
- After verification, you will receive a personalised loan offer, including the loan amount and interest rate.
- Upon approval, the loan amount will be disbursed to your bank account.
Every business entity has a unique working capital requirement. So, you must decide on the loan amount that is appropriate for your company. However, research and compare the available options before applying to lock in the best deal. You can apply for a Business Loan for working capital online and get the funds you need to meet your financial requirements.