During recent times, the concept of working capital has become popular in India, especially among entrepreneurs of micro and small ventures. If you want to junk your car and get cash then here is the site where you will be informed of all the details and how you can get cash for your car. You have to inform all the details about the car, get the offers quickly and get payment.
Assume for a moment that you are the owner of a start-up venture that sells solar panels as part of the green initiative, and have received a bulk order from the government agency. While you might be assured of full payment on completion of the order, your main worry is how to secure funds for day-to-day running of the venture. It is at this point that terms like working capital loan and working capital turnover ratio gain relevance. You are bound to incur expenditure while executing the order, and for this you can rely on working capital loan, which can be repaid once the obligation is met and you receive full and final payment.
Working capital loan jargon
Your quest to comprehend what is working capital is best satiated by grasping all the jargon related to it, which is as follows –
- Amount that you can acquire under working capital loan and is determined by the financial status of the venture;
- Interest rate, which can be simple or complex, varies from one lender to another, is prone to fluctuations, and is added to the monthly installment;
- Collateral comes into play in case of a secured working capital loan, and can range from jewellery and personal possessions, to real estate and assets;
- Repayment tenure refers to the duration over which the loan should be paid back to the lender, and depends on the amount mutually decided upon by both parties;
- Processing fee is charged by the lender in lieu of approving the working capital loan;
- Application process calls for proving the eligibility of the borrower, providing personal and business related information, and submitting all the relevant documents;
Eligibility criteria for getting working capital loan
To be eligible for a working capital loan, listed as follows are the criteria that play a crucial role –
- Age of the applicant, which should fall between 21 years and 65 years;
- Nature of the business, because ventures that belong to sectors such as manufacturing, trading and service require more funds on a daily basis as compared to entities in other sectors;
- Information related to the venture, as in the duration that the business has been functioning as a commercial entity, the minimum in this regard being 2 years at the same address;
- Business turnover, which takes into account the working capital turnover ratio above and below a certain figure, and is treated differently by different lenders;
- Income source, which takes into account every channel of incoming payment – investment, business or some other – prior to deciding upon the eligibility;
- CIBIL score, wherein a minimum acceptable limit is 700-750 regardless of whether you are self-employed, a sole proprietor or an entrepreneur;
- Credit standing, since it is indicative of the credit history of the borrower, in terms of defaults or delays in past transactions;
- Financial acumen, wherein the lender would check all relevant financial documents, like profit-and-loss statement, balance sheet, income tax returns and so on, and based on these would form an opinion regarding the financial capability of the borrower;
Some important benchmarks that come into play while figuring out what is working capital pertain to interest rate that is subject to change depending on the market circumstances, and working capital turnover ratio for a specific duration, which might be a week, a month or longer.
Common forms that this financial solution can take are short-term loans, account receivable loan, factoring/advance loan, or a bank overdraft facility.