What is a working capital loan?
Working capital loans help to cover the day-to-day operations of your business. These loans are also used to enhance the production output by purchasing new machinery or investing in a new branch.
Who offers a working capital loan?
Many banks and NBFCs in India offer working capital financing for all businesses. While big and established businesses have enough resources to fund their instant capital requirements, for small businesses this may not be the case. To mitigate the nearest capital expenditure, a working capital loan for small businesses is the best option.
With the advent of digital revolution, the application process is easy and online. Post the eligibility check and approval of the loan, disbursal of the loan amount is done directly into the applicant’s bank account.
Benefits of a working capital loan
1. A working capital loan will fund the short-term requirements of your business. Such loans are intended to cover short-term expenses, so the approval process is quick, with minimum documentation requirements.
2. Working capital loans cover operational costs for small business owners, who may be facing cash flow issues. Lack of funds may stop you from bagging a good market opportunity. Working capital financing can help you in this.
3. Current pandemic saw rising adoption of online shopping. Consumers are preferring to shop using apps and websites, which is great news for an online business. If you have an online business or want to promote your goods online, you can utilize the capital funds for good marketing. This will increase your reach and increase brand visibility.
4. A lot of businesses suffer because they promise but don’t deliver. At times, you may have good orders in your hand, but you cannot fulfil them due to insufficient inventory. These instances may leave a bad impression on your business and hamper future sales. The working capital loan can make sure you have enough inventory to fulfil the orders you receive. It can be used to stock up on products that are sold the most, ensuring that the inflow of money will be in line with the outflow.
5. Capital funds can be used for various other business needs like repairs and maintenance of the machinery, investing in employee training, and stocking up an inventory of goods. Your business can take on projects that require a long-term investment but won’t pay off in short term. Few businesses you are associated with may repay you late for your services due to market conditions. A working capital loan can fill up that gap.
6. Sustaining good creditworthiness is important, hence getting working capital loans for small businesses can help to repay any previous debts or dues in time and maintain a good credit score.
One can use the working capital to pay any instalments or EMIs that you might have for business purposes.
7. Getting working capital financing can also help a business retain those funds for emergency use. Many times, businesses are affected by unforeseen circumstances like social-economic or political factors and may require ample funds to bail them out.
A most recent example of such is Covid Pandemic. It has been difficult for small businesses to keep their operations running smoothly. The majority of MSMEs have struggled to manage their working capital efficiently due to operational restrictions. Working capital funds have helped them to recover from their losses faster.
Getting a working capital loan is easy but it has to be managed and used efficiently and effectively as well. More so for online businesses. Effective use of working capital financing can help businesses sustain, grow and broaden their customer base.