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Working Capital Loan Meaning

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Meaning of Working Capital Loan, Types of Working Capital Loan, Features of Working Capital Loan, Working Capital Loan Meaning

Working Capital Loan Meaning

Money which is used to conduct day to day operations of any business is known as working capital. A company cannot work efficiently without a free flow of working capital. So in order to ensure smooth operational performance for any business. One can opt for working capital loan. In this article we will let you know about the meaning of working capital loan and all other aspects related to it.

What is working capital loan

Company working capital loan is is that loan which is availed in order to fund the the daily operations of any particular business. Not all Business have regular sales throughout the year. So in order to to keep the smooth operations going on need of working capital loan arises. The need of working capital loan arises specially in those companies which have seasonal business cycles. While some other companies may require working capital loan during festival seasons or that time when their business activity is reduced. This types of loan can be secured or unsecured. The working capital of a company is also a reflection of a financial health and liquidity position of a company. The working capital loan is is a type of business loan which is used to meet the short term financial obligations and day-to-day operational requirements. This type of loan is not to fund the Business expansion for asset purchase plans of the company. Short term liabilities can be from payment of monthly  overheads, purchase of raw materials, inventory management for day to day expenses of a company.

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By the help of the working capital loan companies short term necessities can be taken care of of and Company can have more space for future plan and focus on long-term leads or goals. The working capital loan is applied for small and medium enterprises. Which usually have a loan tenure ranging from 6 to 48 months. The duration of this type of loan differs from bank to bank. Similarly  the interest applied on a working capital loan is fixed by individual banks. The loan amount which is offered by the bank differs from one bank to another under the guidelines of The Reserve Bank of India (RBI).

Features of Working Capital Loan

Above we have explained you in detail about the working capital loan. Let’s have a look on some important features of working capital loan.

Loan amount

Amount which is offered through working capital loan is quite dependent on the business requirements, experience of a business and its tenure.

Interest rate

Interest rate of working capital loan varies from one bank to another and it is is calculated as per the need of a borrower.

Collateral

This type of loan can be either secured or unsecured the bank curates the working capital loan as per the capability of the borrower.

Repayment

The payment of the working capital loan is designed according to the cash flow of the the particular business.

Age criteria

One of the important factor to apply for this type of loan is age criteria the borrower should be above 21 years of age and should be below 65 years.

Processing fee

When any company applies for working capital loan, the bank will charge a processing fee which is is different from one bank to another.

Loan applicability

One can apply for working capital loan if if you are private or public company ,partnership firm ,entrepreneur ,sole-proprietor ,self employed ,professional or non professional ,MSME.

Types of working capital loan

Overdraft facility or cash credit
Term loan
Bank guarantee
Packing credit
Letter of credit
Accounts receivable loan
Post shipment finance

We hope by reading this article you will understand about the the meaning of working capital loan. If you have any suggestion or queries. You can write down to us in comment box we will reply you as soon as possible.

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