How Does a Working Capital Loan Keeps Your Business Running?
Businesses require a constant flow of funds to pay for their essential overhead costs. This sum is known as working capital or net working capital and is the difference between a company’s current assets and current liabilities. Working capital is one of the most used measures of an organisation’s operational efficiency, liquidity, and short-term financial health. A business with a substantial working capital has a higher potential to grow and expand its operations as it is unlikely to face a monetary deficiency to pay for the necessities.
In India, the demand for working capital finance has increased by a significant margin in the last decade. Lenders are expecting double-digit growth in the commercial credit lending market because of the high average-capacity utilisation rate (reaching almost 76% in the previous financial quarter). Availability of large sums against affordable interest rates and borrower-friendly repayment terms has made it popular across businesses of all sizes.
There are several reasons why an increasing number of businesses are opting to avail a loan to maintain and boost their working capital.
Here’s how working capital finance can keep an organisation running.
It provides financial support for immediate requirements
Very few organisations enjoy a steady stream of orders and revenue throughout the year. Unforeseen expenses like machinery maintenance, upgradation, large-scale orders, etc. can strain a company’s net working capital and prevent it from operating efficiently. A working capital finance can provide the necessary financial backing to acquire better quality raw materials, skilled workforce, or to pay for larger expenses like leasing or repairing equipment.
Frees tied-up funds –
MSMEs across the country face a constant shortage of funds to pay for the necessities to run their organisation. New businesses also have a higher than average start-up cost, which can quickly consume the cash flow and deplete their savings. Adequate working capital can help run a small business by providing additional funds and freeing the organisation’s income.
The large sum of net working capital loan helps organisations to create sufficient financial backing.
Unsecured financing options
A business does not have to pledge any collateral to avail the necessary sum of money. Unsecured finances help the borrower eliminate the risk they face by putting their asset at stake. New businesses are also unlikely to face any difficulty as they often don’t have sufficient assets to pledge against the money.
Comes with minimum or zero end usage restrictions –
Most financial institutions offer working capital finance with zero or minimum end usage restrictions. It allows a borrower to utilise the amount according to their unique requirements. Unlike a dedicated mode of financing like a machinery loan, the sum can be used to fund almost all types of immediate needs of a business.
Working capital is one of the most important factors that help keep a business stay agile. Thanks to the availability and proliferation of working capital finance, it has become significantly easier to maintain the necessary financial backing to keep a business running.