Working Capital Loan | How To Apply | Basic Guide

What is a Working Capital Loan?

A Working Capital loan is a loan for Micro, Small and Medium Enterprises to cover the Working Capital cycle as well as meet the daily operational costs.

Working Capital Loan | Features

  • Working Capital finance by nature has a short tenor of usually 12 months and requires collateral.
  • Collateral accepted for working capital loans include:
    • Stock
    • Book-Debts
    • Additionally, banks may ask for Commercial/Residential property as incremental security
  • The types of facilities for working capital loans include:
    • Overdraft Loan/Cash Credit Loan
      • An overdraft loan or cash credit loan allows businesses to borrow money through a Current account and pay interest on the amount borrowed.
    • Letters of credit
      • A Letter of Credit is when a bank assures a buyer’s payment to a seller will be received at a specified time with the specified amount.
    • Bank guarantees
      • A Bank Guarantee is when a bank pays either a buyer or seller in the case where a seller fails to provide goods to the buyer or the buyer fails to pay to the seller.
    • Priority Sector Loans
      • Under RBI regulation, banks are required to dedicate a percentage of their Total Advances to the Priority Sector to certain categories of business which include SSI units, companies engaged in Agriculture and Agri related services etc.
      • If you qualify for Priority Sector, don’t forget to check “Yes” in your application

Benefits Of Working Capital Loan

  • Wide variety of facilities offered
  • Flexible collateral options
  • Quick approval and easy documentation

Working Capital Loan Interest Rates and Tenor

  • The interest rate for a working capital loan often ranges between 12%-16%.
  • A working capital loan is usually reviewed annually by banks.

Working Capital Loan Eligibility Criteria

  • To be eligible for a working capital loan, an applicant must represent a business that has been operating for a certain number of years and/or earning a certain annual turnover. These criteria vary between the type of business you represent and the bank receiving the application
  • The following entities are eligible for a working capital loan:
    • Sole Proprietorship
    • Partnerships
    • Private Limited Companies
    • Public Limited Companies

Related: Best Small Business Loans In India – Big List

Working Capital Loans Document Checklist

DocumentEntity
Sole ProprietorshipPrivate/Public LimitedPartnership
CMA Report if turnover > Rs. 5 crores
Business continuity Proof – 3 years income tax return & Income  statement
Last 2-year audit report and audited Financials (debtors & creditors List a must)
Last 12 months bank statements
In case of transfer of loan: Last 12 months of  loans statement  along with sanction  letter of the previous bank
Any other loan statements on books of companies along with sanction letters
Last 12 months loans statement with sanction letter of any other existing loans
Business incorporation date proof – PAN Card
MOA(Memorandum of Association ) and AOA (Articles of Association)
Latest shareholding pattern on company letterhead
List of Current Directors on company letterhead
Certificate of Incorporation
Partnership deed
Certificate of Registration

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