Any business will need two capitals – fixed capital and working capital. Fixed capital is an amount which is comparatively huge and is necessary for building the infrastructure of a company. Whereas a working capital is the lifeline of any business. It will help you in managing your business well and smoothly. Some people might want to cut down on unnecessary expenses, but working capital loans are essential for keeping your cash flow steady.
Working Capital Loan:
Working capital is the variation between your current assets and your liabilities for your business.
Working capital = Current Assets – Current Liabilities
Your current assets might be cash or any form of asset which is related to your business. Your liability means the loan or any credit which you have got against those assets.
Working Capital Loan Types:
Here are some types of working capital loan:
Trade Credits – Your potential supplier can willingly offer it after checking your credit score.
Overdraft – When you have a good relationship with your financial provider, then they will allow you to avail of an overdraft facility, where you only pay interest during the loan tenure and the loan amount at a later stage. But the interest rate for this might be a bit high.
Loans Against Bills – You can avail a loan against the bills which you received as confirmed sales orders. You should have a good credit score for this loan type.
Short-Term Loans – These loans come with a fixed rate of interest and a comfortable repayment term of 2 years which also will not require you to submit any collateral for when you have a good credit score.
Equity Funding – When you are a new business, your business will not have a credit score. In cases like these, equity funding can be obtained from any private funder.
Advantages Of A Working Captial Loan:
Both banks and NBFCs are now offering working capital loans. But borrowers prefer NBFCs compared to banks for completing their financial needs. Here are some reasons why:
- When compared to banks, working capital loans from NBFCs are easy and quick to obtain.
- You will have to be in the same business for at least five years when you want to get the loan from the bank, but that is not the case in NBFCs.
- Most banks ask for too much collateral when you are looking for a working capital loan, whereas that’s not the case with NBFCs.
- When compared to standard business loans that we get in banks, working capital loans make sure you get your business needs to be done easily and quickly.
- With a working capital loan, you can make sure to avoid spending unnecessary money and high spending loan repayments.
You should make sure to create a thorough business plan which deals with all your requirements and cost needed for it and choose the right loan type which best suits your needs when you don’t want to end paying too much from your hand.
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