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WORKING CAPITAL LOAN | HOW TO APPLY | BASIC GUIDE

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 Agrirelated 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

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Business continuity Proof – 3 years income tax return & Income statement

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Last 2-year audit report and audited Financials (debtors & creditors List a must)

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Last 12 months bank statements

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In case of transfer of loan: Last 12 months of loans statement  along with sanction  letter of the previous bank

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Any other loan statements on books of companies along with sanction letters

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Last 12 months loans statement with sanction letter of any other existing loans

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Business incorporation date proof – PAN Card

 

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MOA(Memorandum of Association ) and AOA (Articles of Association)

 

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Latest shareholding pattern on company letterhead

 

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List of Current Directors on company letterhead

 

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Certificate of Incorporation

 

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Partnership deed

 

 

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Certificate of Registration

 

 

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