Many firms apply for working capital loans to cover their daily expenses. They are an excellent way to focus on business growth and create capital. They have become quite popular among Indian small business owners who need funds to cover their monetary requirements.
Often, these loans are not meant to buy long-term assets but to cover regular operational expenses like paying salaries, accounts payables, and other activities. If you are an MSME in India looking for a working capital loan, here is a complete guideline for you.
Reasons to Apply for Working Capital Loans
Most businesses do not maintain a steady revenue stream throughout the year. There are times when the revenues peak, and there might be troughs during low-demand periods. This is when working capital loans provide financial backing to cover operational costs and maintain manufacturing capacity. You may consider applying for this loan type if your business primarily relies on cyclical sales. You may avail of these short-term loans to pay for your wages and utilities and handle any emergency expenses. The primary purpose of taking this loan is to address financial constraints when funds are low. These may include:
- Lucrative Opportunities: There might be times when opportunities knock at your door, but you can’t open the door due to a lack of funds. A loan can help you take that opportunity and increase business. For instance, if you are a woman looking to startup a business, you may get a startup business loan for women to get financial support.
- Emergency Cash Reserve: If your business does not have financial stability, you may fall back on loan to handle an emergency.
- Seasonal Business: If you have a seasonal business that only gets sales during particular seasons, you may need a working capital loan to have stable cash throughout the year. This will prevent you from having a financial crunch during the off-season.
Who is Eligible for a Working Capital Loan?
Any self-employed individual, private limited company, proprietor, or partnership firm working in the manufacturing, trading, or services sector may apply for a loan according to their requirement. The lender also gives attention to your business vintage, which is your total business experience and the number of years you have been running the current business. You must be making profits with your company for a couple of years and have a decent turnover and annual income.
Documents Required for a Working Capital Loan
Although most NBFCs have minimal business loan documentation requirements these days, these are a few essential documents you must furnish:
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- Valid identity proof like Aadhaar card and driving license, and PAN card
- Address proof like voter ID card, passport, ration card, driving license, and electricity bill
- Last 6 months’ bank statements
- Income proof, like your latest ITR with income computation, balance sheet, and profit & loss account for the last 2 years, submitted after CA certification
- Proof of continuation, like ITR/Trade license/Establishment/Sales Tax Certificate
- Other documents, like Certified Copy of the Partnership Deed or Sole Proprietorship Declaration, certified copy of the Memorandum & Articles of Association, and the Board resolution
Steps to Apply for a Working Capital Loan
- Click on the loan you want to apply for
- Enter the required details
- Upload the required documents
- Enter the loan amount you wish to borrow
- Select your loan tenure according to your repayment capacity
Based on the details you provide, you will get instant confirmation of whether you qualify for a loan and for what amount. If you accept the loan offer, you will receive a reference number, which you can use to track your application status and for further communication. The lender’s customer representative will contact you for further steps. Once they verify the details you provided, you will receive a loan offer with the approved loan amount and interest rate. If you want to proceed, you will get your loan amount in your bank account within 24 hours.
As a business owner, you must be aware of the fact that a lack of funds can kill your business. That is why you may apply for a working capital loan to resolve your short-term problems and let your business function efficiently and correctly. This loan type is the simplest method to protect your company’s credibility and support business growth. So, apply for one to enjoy all the benefits and take your business to the next level without any cash crunch.