What Is The Best Way To Get A Working Capital Loan?
Working capital is nothing but the amount of money that is required to maintain a company’s operating cycle. At times a business, especially if it’s a small business, may find itself lacking the money to smoothly run its day-to-day operations. This is where a working capital finance can be of help.
When applying for such a loan, it is important to know how much working capital is required and what will be working capital loan terms, as a business owner will never want the leverage to go so high that he or she is unable to repay the loan. Thus, you should only go for a working capital loan if your business is generating reasonable operating profit.
Here are the different options available for a small business enterprise to arrange for working capital finance:
Instead of going for long-term loans, one of the better options for small business units is to go for a trade creditor loan. Such a loan is easily available if you have a genuine and trustworthy relationship with your trade creditors, who will not have an issue granting you a short-term working capital loan, especially if you have paid them on time in the past. Due to this relationship, a trade creditor may be willing to extend support to enable you to meet a big order and you get a decent time frame to churn your capital.
Factoring Your Order
Another feasible option for obtaining a working capital loan is factoring, a facility many entrepreneurs are still unaware of. Factoring is an option where once you have filled an order, a factoring company buys your account receivable and then handles the collection. This type of financing is more expensive than conventional bank financing as they might charge you a bit more given that you don’t need to go for any documentation or collateral. For those who are new to the industry, such options are great as you don’t end up compromising your brand image as you start out.
Small Business Loans or Working Capital Loans
Lenders now offer small business loans or working capital finance to help a business grow and sustain itself during times of need. Usually these loans go up to Rs.30 lakh and have flexible repayment tenors. With affordable interest and minimal documentation, a small business can get approved for a working capital loan in just 24 hours—and infuse needed funds to keep it functioning smoothly. This loan doesn’t require any collateral as it is an unsecured loan, thus making it easier for a small business.
Account Receivable Loan
Account receivable loans are based on the confirmed sales order value of a business. Such loans are perfect for a company that requires funding for filling a sales order. However, you need to be reputable and have a good credit history for getting this type of working capital loan.
Line of Credit Facility
It is usually very difficult to find out exactly how much your business needs as working capital. When you cannot decide on the right amount, it may be a better idea for you to opt for a business line of credit facility. Under it, your business will be given a certain credit for a certain period. You have the freedom to withdraw an amount you need at any given time, and withdraw more later up to the limit. You may also repay and re-avail the amount you have repaid within the chosen tenor. This makes a line of credit very flexible for a small business.
Equity funding is a great option for many, especially those who are not able to generate profit in their initial years of operation. Usually, lenders tend to not give loans to a company that doesn’t show any profit in its books and even if they do, they may charge a high premium on it. As far as equity funding is concerned, the funds may be injected from your own personal resources or from a family member, a friend or a third-party investor with a certain amount of return on investment, which may turn favourable for you in the long run.
If you are seeking a Working Capital Loan or a Business Line of Credit, look no further than Bajaj Finserv, which offers these loans at nominal interest and easy online application on terms that are created for small businesses.