Every business requires a\nconstant flow of cash to meet its regular expenses such as salaries and wages,\nraw material, administrative expenses and so forth. The question, therefore, is\nhow to ensure this regular flow of cash?<\/p>\n\n\n\n
The Need for Working Capital<\/strong><\/p>\n\n\n\n Working capital refers to the\ndaily inflow and outgo of cash in any business. It is also described as the\ndifference in assets and liabilities of a business. It is the cash that lies in\nthe coffers and is used for day-to-day expenses. Working capital may variously\nbe used for:<\/p>\n\n\n\n There may be other similar reasons\nfor which businesses may take a working capital loan.<\/p>\n\n\n\n Determining the amount of working capital you\nneed for your business can be tricky as it varies not only with the type of\nbusiness you have but also with seasons, situations, market conditions and\nmore. One way to compute your working capital needs is to determine how fast\nyour current assets \u2013 such as debtors, receivables and inventory \u2013 can be\nconverted to cash and estimate your daily cash outgo or current liabilities.\nYou can then determine how much \u201cmargin\u201d you would like to maintain between\nyour current assets and current liabilities. This determines the amount of\nworking capital your business would require. <\/p>\n\n\n\n If you have been in business for a few years,\nyou will have historical data to help you arrive at estimates. If you are in a\nseasonal business that peaks at certain times during the year, you must factor\nthis into your computations since your expenses may not be evenly spread out \u2013\nand neither would your income. Similarly, you need to factor in other anomalies\nof your business into your computation.<\/p>\n\n\n\n Having determined the amount of working capital you need for your business needs, the next step is to determine the exact amount of loan you require. In order to do this, ask yourself \u2013<\/p>\n\n\n\n Most banks and NBFCs have an online EMI\ncalculator that you can use to work out the EMI (equated monthly instalments)\nyou would pay for the term of your loan. This figure can help you further in\ndetermining the amount of credit you need and the duration thereof.<\/p>\n\n\n\n Sources of Obtaining Working Capital Loan<\/strong><\/p>\n\n\n\n Depending on the amount of loan\nand the duration for which you need it, working capital loans can be categorised\nas short- or long-term loans. <\/p>\n\n\n\n Short-term loans: <\/strong>Short-term loans are taken for short\ndurations \u2013 usually a year or less \u2013 and are used to fund a temporary shortage of cash. These loans are typically\ncollateral-free and often granted as an extension of an existing account with a\nbank \u2013 for example, an overdraft. These\nloans may also be issued against future receivables such as discounting bills.\nCredit cards are another way to obtain short-term finance, but the amount of\nfunds depends on the card limits, and interest rates can be considerably high. Some\nentrepreneurs delay payment to suppliers or request advance payment from their\ncustomers and utilise the extra cash to fund their operations.<\/p>\n\n\n\n Long-term loans: <\/strong>Long-term loans \u2013 or loans taken for more\nthan a year \u2013 are usually taken for a specific purpose such as purchasing an\nasset. Most lenders demand collateral for long-term loans. There is also a broader\ninvestigation into the creditworthiness of the borrower. Banks and NBFCs (non-banking\nfinancial institutions) offer long-term loans to their customers subject to specific\nterms. The borrower must be able to show proof of income, proof of residence\nand proof of identity and age to obtain a long-term loan. The limits on the\namount of credit, term and other conditions vary from one lender to another.<\/p>\n\n\n\n In order to ease pressure on cash\nflow and facilitate smooth running of business, FinanSME helps provide Working\nCapital Loan facility to its partner SMEs. Our Bill Finance facility plugs in\nthe mismatches in the cash flow and relieves the SMEs from worries on\ncommitments.<\/p>\n\n\n\n Strong Data Driven Accreditation Process <\/strong><\/p>\n\n\n\n Our strong accreditation process\nensures that all of your transactional history is recorded with us and then\nreported back to our Financial Institution partners. This ensures availability\nof the SME\u2019s transactional data with Power2SME and helps reduce the processing\ncycle time for the loan significantly, once all necessary documents have been\nsubmitted and approved.<\/p>\n\n\n\n We aim to effectively partner\nwith SMEs at every step in their journey and help them enhance productivity by\nmultifold. We look to engage with them to understand your working capital needs\nand growth plans well, so we can ascertain and provide the appropriate working\ncapital they need for their growth<\/p>\n\n\n\n What you stand to gain:<\/strong><\/p>\n\n\n\n Write to help@finansme.com to learn more!<\/p>\n","protected":false},"excerpt":{"rendered":" Every business requires a constant flow of cash to meet its regular expenses such as salaries and wages, raw material, administrative expenses and so forth. The question, therefore, is how to ensure this regular flow of cash? The Need for Working Capital Working capital refers to the daily inflow and outgo of cash in any […]<\/p>\n","protected":false},"author":1,"featured_media":254,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/198"}],"collection":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/comments?post=198"}],"version-history":[{"count":2,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/198\/revisions"}],"predecessor-version":[{"id":200,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/posts\/198\/revisions\/200"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/media\/254"}],"wp:attachment":[{"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/media?parent=198"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/categories?post=198"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.finansme.com\/blog\/wp-json\/wp\/v2\/tags?post=198"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}How Much Working Capital Does a Business\nNeed?<\/h3>\n\n\n\n
To learn what kind of loans your business can avail, reach out to us at FinanSME \u2013 where borrowers can meet lenders to obtain the much-needed funding for their business.<\/strong> <\/h3>\n\n\n\n