Working capital loans are short term (max 12 months) loans that are provided to businesses to maintain growth, to pay regular wages, to pay for operational expenditure, to cope up with seasonal fluctuations etc at a reasonable interest rate – usually it averages from 11 to 16 %.
The following lists the types of or ways of getting a working capital loan in India –
- Trade creditor – suppliers usually provide these type of loans by offering supplies at credit, at a premium if the case be.
- Bank overdraft facility – Banks provide more money than already in the acc based on the credit rating of the acc holder.
- Account receivable loan – this loan is obtained against confirmed sales order values of a business, based on credit rating of the applicant.
- Factoring or advances – this is against some periodic payment that has been confirmed and will be received by the business.
- Short term loans – usually for 6 to 12 months based on credit rating and relationship with the lender without requiring any collateral.
- Equity funding – funding or investment that somebody puts in in return for interest or some other form of return. This loan is applicable when the credit history of the borrower is not good or below average.
Advantages of Working capital loan –
- No collateral required.
- Speed and flexibility
- Funds at the discretion of the borrower