Working capital loans give leverage to businesses to maintain liquidity of funds, including gross working capital, so that you can handle daily operations smoothly. However, these loans are limited to individuals, proprietors, partnership firms, private or public companies, retailers, or traders. The working capital term loan scheme extends financial assistance to the manufacturing sectors to meet their working capital requirements. This loan helps businesses in this industry to function effectively and address issues, such as low cash reserves, inconsistent cash flows, inability to meet short-term financial needs, etc.
Why Does the Manufacturing Sector Need a Working Capital Term Loan?
Although there are several other ways of accumulating funds for running a company, business owners prefer working capital term loans as these are easier to borrow and flexible repayment tenures. The rate of interest is quite reasonable. Working capital offers you a better cash flow and increases versatility. The funds come with unrestricted use, so even if you are considering expansion or future financial growth of your business, you can use these funds.
Working capital loans increase the competitiveness of businesses in the manufacturing sector. These loans help them maintain a strong financial position and assure easy availability, hassle-free application, and quick disbursal.
You will find many financial institutions that can offer you lucrative working capital loan schemes. Many come with enticing deals and discounts. Besides, a working capital term loan also helps businesses in the manufacturing and processing sector enhance their credibility in the market, provided the owners make their EMI payments on time. This enables easy access to future credit.
Eligibility Criteria to Check Out
The conditions applied are as follows:
- These businesses should be in operation for a minimum of 2-5 financial years and should be able to demonstrate profitability in their business financial statements.
- The net worth should display an incrementing trajectory.
- The scheme is applicable to businesses, whether assisted or non-assisted by the corporation.
- Any loan the organisation already has should be procured from financial institutions.
- The business should not come under the ‘sick unit’ list of businesses.
Tips for Leveraging Working Capital Term Loan Schemes for Business Growth
Here are some key tips to leverage business growth with a Working Capital Term Loan Scheme.
Apply for a Flexible Loan Tenure for Capex Loan.
It is advisable to opt for a longer tenure to repay the loan easily. Many financial institutions offer tenure of up to 7 years. Borrowing businesses need to repay the loan in monthly EMIs, which include the principal amount plus interest charge components.
On the other hand, Cash Credit/Overdraft facility under working capital loans comes with flexible repayment based on the utilization of funds.
Get the Leverage of a High Loan Amount
Starters can apply for a working capital business loan of smaller amount based upon their requirement. The total loan amount is not restricted to this figure, as after paying EMIs diligently for a year, they can apply for an additional loan amount.
Follow the Debt Equity Ratio and Get Instant Disbursals
Stakeholders like business owners, shareholders, or creditors need to contribute towards the working capital of the firm. The debt ratio is the measurement of the contribution that is invested in the business. The protocol is that the debt ratio should not exceed 2:1, including the working capital business loan amount. The promoter must provide a minimum of 25% of the working capital assessment.
How to Apply for a Working Capital Term Loan Scheme?
Business owners that run organisations in the manufacturing and processing sector must follow this simple procedure to apply for a Working Capital Term Loan:
- Identify a bank or financial institution that offers the scheme.
- Check and meet the eligibility criteria.
- Prepare required documents, including financial statements and KYC documents.
- Complete the loan application form accurately – offline or online.
- The bank will conduct a credit appraisal of your business.
- Upon approval, you’ll receive a loan offer detailing loan terms.
- Accept the loan offer to get the loan disbursed to your business account.
Remember that the process may vary slightly depending on the lender, so checking with the preferred lender is essential.
Working capital financing for units in the manufacturing sector means an added advantage of short-term loans that can fulfil their cash flow shortfalls and help them, especially during production lags.
The payment cycle in such industries is quite delayed, while the need for initial investment in raw materials and production of goods is immense. The Working Capital Term Loan Scheme is a disguised blessing to cater to such requirements.
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