We discussed what the Working Capital Loans and types of Working capital loans are in the previous blog. Now in this blog, we will be discussing the benefits of Working Capital Loans and the criteria to avail them.
But first, if you have not read our previous blog about Working Capital Loans, we would recommend you to do so as this blog is the continuation of the previous one.
Benefits of Working Capital Loans.
- Collateral-free
Working Capital loans are generally collateral-free, and the amount of credit solely depends on your credit history. So if you have a good credit history, it will be super-easy for you to avail Working Capital Loan. This is way better than other secured loans where you have need some collateral to help the loan.
- Well-suited for Financial crises
Even a well-established Business might find itself struggling with the cash flow sometimes. In such cases, it becomes challenging to maintain daily Business operations. That’s where the working Capital loan comes in. It helps Businesses stay afloat by reducing pressure and borrowing from other sources. So, for Businesses, Working Capital loan can prove to be a boon if utilized efficiently.
- Shorter terms
Working Capital Loan’s maximum tenure can be 84 months at max and a minimum of 9 months. So it becomes easy for Borrowers to plan their repayment schedules, without impacting their long-term investment goals.
- Spending at your will
Unlike other loans, there is no discretion on the way Businesses can spend their funds from Working Capital Loans. Businesses can spend this fund in the way they like, although systematic spending is advisable to avoid issues.
- Lifeline in Challenging times
Thousands of Indian Businesses are seasonal. So they see a sharp contrast in their sales throughout the year. The cashflow is adequate in the favourable season, but it slows down considerably or even stops in the off-season. Such a precarious situation can lead to the shutdown of the Business.
Fortunately, Working Capital loans can prove to be a life-saver.
How to calculate the Working Capital of the Business?
It is extremely easy to calculate the Working Capital amount for any Business. It is a simple subtraction of Current liabilities from Current Assets.
For e.g
If the total assets of a Business are INR 75,00,000 and the outstanding liability at the time of application of loan is INR 35,00,000, then the Working Capital will be:
INR 75,00,000- INR 35,00,000 = INR 40,00,000
Necessary criteria and Documents for Working Capital loan
Criteria to avail of the working capital loan:
- The minimum of a borrower should be 18 years, and maximum age should be 65 years.
- The borrower should not be a defaulter of any financial institution previously.
- The borrower should have an excellent credit history and CIBIL score.
- The borrower should be an Indian citizen with no previous Criminal Background.
- The borrower should be either a Sole Proprietorship firm, an MSME, a Partnership firm, or a Private/Public Ltd Company.
Necessary Documents to avail the Working Capital Loans
- PAN card
- Identity proof (Aadhaar Card/ Driving License/ Passport)
- Address proof (Aadhaar Card/ VoterID/)
- Income Tax Returns of the last three years
- Bank Statements of the last three years
- The audit report of the previous two years
- Registration certificate (if any)
- Certification of incorporation (if applicable)
- Any other documents as per the Business model
What is the difference between a term loan and working capital loan?
The primary difference between a term loan and working capital loan is its utilization. Working Capital Loans can be used only for daily Business operations while the Term loans can be used for business expansion, buying equipment & purchasing raw materials.
Other difference between Term loans and Capital loans
- You can avail of term loans for a more extended period and higher amount while Working Capital Loans can be availed for a shorter period and lower amount.
- The Working Capital Loans are collateral-free while the Term loans are secured loans.
- Detailed paperwork is necessary for Term Loans while Working Capital loans can be availed with minimum paperwork.
Conclusive words
Working capitals are a great way to ensure smooth Business operations. Moreover, they are easy to avail. Its simplicity and easy disbursment has helped numerous Businesses .
If you too are looking for Business funding, Probal Consulting can help you simplify the process.
For more details, get in touch with us today.
Probal Consulting Group is a leading Taxation, Accounting, and Compliance firm that helps individuals, MSMEs, and other businesses manage their accounting, taxation regulatory compliance affordably.
