How can working capital loans help you overcome short-term liquidity crunch

When you are running a business, there are instances when your cash flow falls short of the requirements, and you feel that you need some funds urgently. This situation occurs when you have not planned your finances carefully or due to seasonal variations. But there is no need to worry about such a situation now; Working Capital Loans are the answer to all your short-term liquidity woes.


What is a Working Capital Loan?

By definition, working capital is the money that you require managing your daily expenses till your payments are realised. In most of the industries, sales are done on credit basis ranging from 30-180 days. During this period, you need to take care of all your expenses as well as make payments to the suppliers. This is where Working Capital Loans come to your aid.

Working Capital Loan is a short-term loan to help the borrowers finance their daily operations. In the present day uncertain working environments, many established businesses falter due to lack of working capital. Liquidity crunch can lead to loss of opportunities and can even spell doom for the business. In such situations, working capital loans help you meet your short-term and immediate requirements without any hassles or overheads associated with other modes of finance.


Who offers Working Capital Loans?

Working capital loans are offered by both banks as well as non-banking financial corporations for their business customers to meet any short-term funding requirements. Working capital loans can be unsecured as well as secured depending on the lender and your credit history. The duration of working capital is generally up to 12 months.


Benefits of Working Capital Loans

Working capital loans enjoy various advantages over other types of loans and finances, such as: –

  • Quick Processing: – Working capital loans are processed quickly by the financial institutions and only require basic documentation to get the loan processed and approved. Many lenders are now offering the application facility online also. As these loans are processed quickly, they are most suitable when your need is urgent, and they enable you to take benefits of the opportunities available.


  • Flexibility: – Working capital loans can be used as per your discretion and for whatever purpose you deem fit. While running a business, it is not possible to pre-plan everything. Sometimes some emergency expenses might come up that must be taken care of, in such situations working capital loans come to your rescue. You need not submit any information to the lender regarding the usage of the loan.


  • No Dilution of control: – When you opt for a working capital loan you enter into an agreement with the lender to repay the EMI’s on time. There is no interference from the lender in your day to day operations, and they won’t even bother you if you make your payments on time. You need not compromise on the ownership of your business.


  • Savings on Interest: – Many banks offer the working capital loan as a line of credit, which is also called working capital limit. Here you need not pay any fixed EMI; you only need to pay interest on the amount you have utilised per month, not on the whole loan amount.


Working capital loans offer you the flexibility to sell your goods and services on a credit basis to expand your customer base and at the same time meet your liabilities in a  timely manner.

About the Author
Finansme | 34 Articles

We believe there is a need for easing the operating environment for the Micro, Small And Medium Enterprises sector. Access to finance, redefining investment limits, could transform MSMEs into a hotbed of entrepreneurial activity.