WHAT IS A WORKING CAPITAL LOAN?                                

A Working Capital loan is a loan for Micro, Small and Medium Enterprises to cover the Working Capital cycle as well as meet the daily operational costs.

WORKING CAPITAL LOAN | FEATURES

●       Working Capital finance by nature has a short tenor of usually 12 months and requires collateral.

●       Collateral accepted for working capital loans include:

○       Stock

○       Book-Debts

○       Additionally, banks may ask for Commercial/Residential property as incremental security

●       The types of facilities for working capital loans include:

○       Overdraft Loan/Cash Credit Loan

■       An overdraft loan or cash credit loan allows businesses to borrow money through a Current account and pay interest on the amount borrowed.

○       Letters of credit

■       A Letter of Credit is when a bank assures a buyer’s payment to a seller will be received at a specified time with the specified amount.

○       Bank guarantees

■       A Bank Guarantee is when a bank pays either a buyer or seller in the case where a seller fails to provide goods to the buyer or the buyer fails to pay to the seller.

○       Priority Sector Loans

■       Under RBI regulation, banks are required to dedicate a percentage of their Total Advances to the Priority Sector to certain categories of business which include SSI units, companies engaged in Agriculture and Agri related services etc.

■       If you qualify for Priority Sector, don’t forget to check “Yes” in your application

BENEFITS OF WORKING CAPITAL LOAN

●       Wide variety of facilities offered

●       Flexible collateral options

●       Quick approval and easy documentation

WORKING CAPITAL LOAN INTEREST RATES AND TENOR

●       The interest rate for a working capital loan often ranges between 12%-16%.

●       A working capital loan is usually reviewed annually by banks.

WORKING CAPITAL LOAN ELIGIBILITY CRITERIA

●       To be eligible for a working capital loan, an applicant must represent a business that has been operating for a certain number of years and/or earning a certain annual turnover. These criteria vary between the type of business you represent and the bank receiving the application

●       The following entities are eligible for a working capital loan:

○       Sole Proprietorship

○       Partnerships

○       Private Limited Companies

○       Public Limited Companies

WORKING CAPITAL LOANS DOCUMENT CHECKLIST

Document	Entity
Sole Proprietorship	Private/Public Limited	Partnership
CMA Report if turnover > Rs. 5 crores	√	√	√
Business continuity Proof – 3 years income tax return & Income  statement	√	√	√
Last 2-year audit report and audited Financials (debtors & creditors List a must)	√	√	√
Last 12 months bank statements	√	√	√
In case of transfer of loan: Last 12 months of  loans statement  along with sanction  letter of the previous bank	√	√	√
Any other loan statements on books of companies along with sanction letters	√	√	√
Last 12 months loans statement with sanction letter of any other existing loans	√	√	√
Business incorporation date proof – PAN Card		√
MOA(Memorandum of Association ) and AOA (Articles of Association)		√
Latest shareholding pattern on company letterhead		√
List of Current Directors on company letterhead		√
Certificate of Incorporation		√
Partnership deed			√
Certificate of Registration			√