Working Capital Loan

A working capital loan is a short-term loan used by businesses to finance their day-to-day operations, such as raw materials purchase, paying rent, wages, etc. It helps cover short-term operational needs rather than long-term investments.

1. Purpose: To manage operational expenses (e.g., payroll, utilities, inventory).
2. Short-term: Typically repaid within 12 months or renewal in eyery year.
3. Flexible Usage: Can be used for various business expenses except for long-term assets or investments.
4. Unsecured/Collateralized: May be unsecured, but higher loan amounts often require collateral (property, inventory, etc.).
5. Interest Rates: Higher interest rates compared to long-term loans, as they involve greater risk to the lender.
6. Repayment Options: Typically repaid in regular installments (monthly or quarterly) or structured based on the business’s cash flow.

1. Short-term Loan: A lump sum amount paid back with interest over a fixed period.
2. Line of Credit: Flexible credit line that a business can draw from when needed and only pay interest on the amount used.
3. Invoice Financing: Businesses borrow against their receivables, using unpaid invoices as collateral.
4. Trade Credit: Offered by suppliers allowing businesses to delay payments for goods/services.
5. Merchant Cash Advance: A business receives a lump sum in exchange for a percentage of future sales.

• Seasonal businesses needing funds during off-seasons.
• Cash flow issues that temporarily hinder daily operations.
• Sudden operational needs like equipment repair, staff hiring, or bulk purchasing.

1. Business Age: Many lenders require businesses to be operational for at least 6 months to 2 years.
2. Revenue Requirements: Demonstrating a certain level of consistent revenue is often required.
3. Creditworthiness: Good personal or business credit score, though alternative lenders may be more flexible.
4. Profitability: Lenders often want to see profitability or strong potential for it in the near future.

• Bank statements: Last 6–12 months.
• Profit & loss statements: Recent financial reports.
• Tax returns: Business tax returns for the past 1–2 years.
• Business plan (sometimes): To show how the loan will be used and how it will be repaid. working capital finance