Business of any size needs funds to continue operating. Even if you are running a services business, you will need funds to pay salaries, buy consumable service material, etc. to ensure you don’t have to stop work if you are short on any of these things. Working capital loans are designed to address such needs of businesses.

Working capital loans are running loans which are also called ‘credit line’ extended to the businesses for a certain period. This credit line is available as a draft to the business whenever funds are needed for the operations.

The most important feature of this credit line is that interest accrues only on the part that is in use. Additionally, you can repay the borrowed amount on a daily basis to keep your credit line or working capital cash strong.

A strong working capital credit line will help you capitalise on short-term opportunities in the market. Quick working capital loans such as offered by LoanSimple, can be helpful for small and medium businesses in the local market. Our quick capital loan can help you rise to the opportunities present in the market, including large orders, or demand spikes during festivities.

Types of Working Capital Loans

Bank Overdraft or Line of Credit

Bank overdraft is the most commonly used working capital financing method. However, you need to first establish your business’s relationship with the bank. Banks generally grant overdraft limits to their existing customers, who are operating current accounts with them. These accounts must demonstrate a stable financial turnover over a long period of time to be eligible for overdraft facility.

A bank overdraft facility can also be availed if you have a Fixed Deposit with the Bank. Then bank can release 70-80% of the FD’s value in cash on daily adjustment basis.

Short-Term Secured Loans

Short-term secured loans have been popular among SMEs in India for some-time. The tenure for these loans can be up to one year and carry a fixed interest rate. These loans are easy to acquire, especially from your vendors. However, interest costs can be exorbitant.

Accounts Receivables Financing

Accounts receivable loans or AR Loans are great if you have pending invoices and reliable customers. You can present these invoices for discounting at your bank and avail a percentage of their total value lent to your business. This is one of the easiest working capital financing option for large, established businesses.

Trade Credit

Most businesses work on credit when it comes to large orders. Trade credits are given by the suppliers to your business and depend on the reliability of your financial performance and goodwill. Trade credit is the most frequent method of working capital financing among businesses.

How to apply for Unsecured Loan Online?

At LoanSimple, we understand the paucity of time and needs of small business owners. You can apply for a new business loan online following the steps given below:

  • Step 1: Check Eligibility
    (At least 1-year old business with a minimum revenue of Rs. 2 Lakh per month)
  • Step 2: Fill Up the Online form
  • Step 3: Upload the Documents as per your Loan Needs
  • Step 4: Loan Approved and Disbursed in 48 Hours
  • Step 5: Start Repayments

Documents Required for Instant Business Loan

There are two loan groups available at LoanSimple based on your funding needs:

For Loans of Rs. 10,000 to Rs. 1 Lakh
  • Identity & Address Proofs: PAN, Aadhaar & Residence Proof
  • Financial Status: 6 months bank statement
  • Business Proofs: Shop Photos & Selfie with shop signboard
For Loans of Rs. 1 Lakh to Rs. 5 Lakh
  • Identity & Address Proofs: PAN, Aadhaar & Residence Proof
  • Financial Status: 12 months bank statement
  • Business Proofs: Shop Photos & Selfie with shop signboard

Frequently Asked Questions

How to Get Working Capital Loan in India?

You can get a working capital loan online in India. India has scores of banks, non-banking financial companies (NBFCs) and Regional Rural Banks (RRBs), which offer working capital loans to eligible businesses.

If your business falls under the category of micro or small categories; that is, if your capital invested in the business is less than Rs. 5 crores, you can secure a working capital loan from an NBFC or RRB much faster than a bank. All you need to do is visit the website of the NBFC and submit your contact and business information.

NBFCs also serve start-up businesses with working capital loans if they meet the financial eligibility conditions.

How is working capital loan amount determined?

Working capital needs can be recognized based on your present inventory situation and future needs. While accounting terms working capital as the difference between current assets and current liabilities, the working capital loan must account for the need for additional working capital to meet certain temporary demand.

Thus, your working capital loan need will be like:
Working Capital Loan = Total Working Capital needed – (Available Working Capital + Out of Pocket Cash Investment)

A working capital loan should help you tap the rising opportunities in the market and act on them quickly. Small businesses can follow this simple formula to calculate their temporary working capital requirement. However, financing working capital for larger organisation is different. Large businesses need to know the working capital cycle to determine maximum working capital loan eligibility.

When Should I Get a Working Capital Loan?

You should get a working capital loan to meet your business’s short-term inventory, cash, and material needs. For example, if you are running a restaurant business, and you receive an urgent order to cater to a marriage party you may need additional cash infusion to capitalise on the order.

Though, profitable, urgent orders can be demanding and may need immediate cash transactions to meet the material demand. A quick working capital loan can keep your business on track. Also, for small working capital loans, your business need not be too old. Even just one-year-old businesses with enough monthly turnover can secure working capital finance.

What can I Use Working Capital Loan For?

You can use working capital loans for any of the following purposes:

  • Act on a Large Order or Market Opportunity
  • Hire or Meet Salary Dues
  • Pay the Vendors
  • Purchase Business Consumables
  • Stabilize Your Cash-flow
How Does Working Capital Loan Work?

Working capital loans are a line of credits, which can be replenished as the business generates cash, and maintained for a definite period. After your loan application gets approved, the amount is transferred to the bank account through which all transactions will happen.

You can use the money as per your business needs and repay the money as soon as you have surplus cash. The loan is daily adjustable so, each payment adjusts your principal on a daily basis. You can also apply for a top-up loan if you find your original working capital loan falling short.

How to Repay Working Capital Loan?

Working capital loans can be repaid through cheque, online transfer, or in cash, depending on the financial institution and the amount of loan. At LoanSimple, you can download the app to manage your loan accounts and transactions. You can also make repayments through the app, regardless of where you are.

That means you do not need to visit any branch or carry the cash around. If your business collects payments in cash, you can simply deposit it to your bank account before repaying your working capital loan or any other business loan from LoanSimple.

Can I Get the Working Capital Loan from Bank?

Yes, you can get working capital loans from banks. However, if you are a new business looking to expand your operations, securing a bank loan could be difficult.

LoanSimple would be glad to assist you with your working capital funds needs even if you are just one-year-old business.

Do I Need Collateral/Security for Working Capital Loan?

You do not need security or collateral for a working capital loan. Working capital loans are a line of credit loans, and generally issued based only on the financial strength of the business and for a short period, generally ranging from a few months to three years.

What is the Minimum Turnover Needed for a Business to Get Working Capital Loan?

Minimum turnover requirement for a business to avail a working capital loan varies from lender to lender. Usually, larger banks prefer better turnover amounts and longer tenure of financial stability for a business to grant working capital loans. However, if you are relatively new business and fall into the category of micro, small and medium enterprises (MSMEs), you can avail a working capital loan with a turnover of only Rs. 2 Lakh a month.