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Working Capital Loan

Working capital is the cash a business needs to conduct its day-to-day operations. If operating capital is not freely flowing, a company may be unable to function effectively. Hence, you may opt for a working capital loan for small businesses to ensure the smooth operation of your business. This article will define what a working capital loan in India offers and its associated features and benefits.

What Is the Definition of a Working Capital Loan?

Working capital loans for new businesses fund a company's daily operations, such as paying employees' wages and clearing accounts receivable. Not all businesses have steady revenue or sales all through the year. Hence, from time to time, working capital financing may be required to continue running operations. This is often the case for enterprises with cyclical sales or seasonal business cycles, while others may need such a loan during holiday seasons or periods of low commercial activity.

Such loans can be secured or unsecured. This means you may or may not be asked to put up collateral to get the loan – based on the loan amount and the firm's financial situation. Working capital shows the financial health and liquidity status of a corporation.

Role of Working Capital Loans

An unsecured working capital loan for MSMEs is a business loan intended to satisfy short-term financial obligations and operational requirements. It is not meant to help you with your company's growth or asset acquisition goals. Monthly overhead payments, customary charges, raw material purchases, and inventory management are only a few examples of short-term responsibilities and operational needs. These factor into your working capital loan eligibility criteria, satisfying which you may apply for a small business loan. A working capital loan thus meets your short-term demands, giving you more time to prepare and focus on your long-term goals with attractive interest rates.

Working capital loans for small businesses are typically designed for small- and medium-sized firms, with loan durations ranging from 12 to 36 months. This duration, however, varies between banks. The working capital loan interest rate is established by individual banks in the same manner. The loan amount varies per bank according to Reserve Bank of India (RBI) guidelines. Your company's turnover is one factor examined while establishing the loan amount.

Features of Working Capital Loans

Now that we have gone through what a working capital loan is, let us examine its characteristics:

  • Loan amount: The loan amount provided via working capital financing is decided by the firm's demands, experience, and longevity. It is adjusted to the organisation's unique financial needs.
  • Interest rate: Working capital loan interest rates vary from bank to bank and is customised according to the borrower's needs.
  • Collateral requirements: Working capital loans may be secured or unsecured, which means you may or may not be asked to put up collateral to get the loan. Real estate, equities, gold, investments, and the firm are all viable collateral options. The bank selects the working capital loan depending on the borrower's collateral capacity.

For an unsecured working capital loan, lenders examine your bank accounts, credit score, and tax records to determine your eligibility.

  • Payback: The loan payback schedule is adjusted to the firm's cash flow.
  • Age criteria: Your age is another factor to consider when applying for a loan. The borrower must be at least 21 years old and under 65 years.
  • Processing fee: When applying for working capital loans, banks charge a processing fee. This fee is unique to each bank.
  • Loan eligibility: You may go for a working capital loan if you are a partnership firm, private or public company, MSME, sole proprietor, entrepreneur, or self-employed non-professional or professional.
  • Forms: Most institutions provide similar forms of working capital loans. These are:
    • Overdraft or cash credit facility
    • Temporary loan
    • Bank's guarantee
    • Letter of Credit
    • Packing credit
    • Post-shipment financing
    • Accounts receivable financing/loan

Criteria for Eligibility

NBFCs provide relatively more straightforward qualification standards for working capital loans compared to banks and other lenders. The following are the prerequisites for obtaining it:

  • The company should have been in business for longer than three months.
  • There should be a minimum of $90,000 in sales in the three months preceding their loan application.
  • The company should not be prohibited from getting SBA loans.
  • The company's actual location should not be on the list of undesirable sites.

Trusts, non-governmental organisations, and charitable institutions are not eligible for a small business working capital loan.

Working Capital Loan Eligibility criteria

Working capital loans For MSME can help secure loans for small businesses which are vulnerable to reduced business activity, market conditions, economic instability, and reduced reach out to the end consumer. However, entrepreneurs and businesses find it difficult to track down the eligibility criteria for securing working capital loans in India. Although the criteria for working capital finance in India can vary from one lending institution to another, the following highlights the average list of eligibility criteria for working capital loans:


  1. Applicant age criteria: Minimum age of the applicant must be 25 years or more. 
  2. Business age criteria: Any business for which a working capital loan is issued must be at least in operations for 3 years.
  3. Income tax return (ITR) documents: Information regarding Income tax returns give lending institutions a good idea of the larger picture and regulatory compliance.
  4. The geographical location of the business: Pertinent documents are needed regarding the geographical location of the business and related factory shops, to check if the location is government authorised.
  5. Account books: To gauge the business model's health, lending institutions often audit a business before deciding to sanction the loan.

Advantages of Flexiloans Working Capital Loans

Flexiloans is a non-banking financing company (NBFC). NBFCs offer several benefits over traditional private and public lenders:

  • Faster processing: You may acquire a working capital loan in three days if you complete the necessary paperwork.
  • Keeping your ownership: These loans help you avoid equity sales by providing quick and easy access to credit without collateral.
  • Increases your cash flow: Our loans allow you to operate regularly despite cash shortages and cyclical fluctuations in sales and revenue by providing accessible cash.
  • Boost your credit score: If your firm was denied a bank loan due to a low credit score, Flexiloans might be able to assist you in improving your credit score by reporting your loan transactions to the Credit Bureau.


You may apply for working capital finance with Flexiloans after understanding what it involves. Consider a Company Growth Loan to meet your other company's needs. Choose a Flexiloans Working Capital Loan or a Business Growth Loan to benefit from low-interest rates and flexible payback periods.