A Handy Guide to Working Capital Loans

Aug 03, 2020

A working capital loan is a form of advance utilised to pay for an organisation’s everyday operations. These usually remain under the category of short-term credit options, borrowed only to pay overhead costs instead of addressing any long-term investment requirements.

Working capital loan for small and medium enterprises is considered as one of the most sought-after modes of financing for businesses across India. In fact, as per data put forth by the RBI, and published in The Telegraph, a total of Rs. 2.31 Lakh Crore worth of loans were sanctioned to finance working capital for various MSMEs, only within 15 days (between March 12 and March 27, 2020). This spike in loan disbursal displays the increased demand for working capital across the country.

Now, if you are a business owner, and currently looking for immediate financing for your venture, a working capital loan might prove to be the best available solution for you. However, there are several types of working capital advances offered by financial institutions across the country, from which you can choose the best one to fulfil your requirements.

Following is a look at why a working capital loan is required for a business. Also, get to know the types of loans that can be utilised to finance these needs, and finally why a gold loan can be the best option in this regard.

The Requirement for a Working Capital Loan

A majority of businesses do not enjoy a steady stream of revenue throughout the year. Companies witness revenue peaks when demand reaches a high point, as well as troughs certain times when it plummets. A working capital loan offers additional monetary backing during exigencies to allow companies maintain the necessary manufacturing prowess and cover other expenses.

Businesses that rely on cyclical sales usually account for the highest number of borrowers of such loans. Available as short-term loans, these advances can be utilised to pay for utility and wages, cater to any emergency overhaul, etc.

Now, when you look for an advance to boost your company’s working capital, you will find various options that cater to your requirements. For the best utilisation of the funds, you need to understand the different types of loan options available and opt for the most suitable one.

What are the Types and Sources of Working Capital Loan?

You can avail finances to fund your working capital requirements through these avenues –

  • Term loan
  • Equity funding, or by investing in mutual funds
  • Invoice financing or loan on accounts receivables, and
  • Business loans
  • Gold loans

Invoice financing is also known as factoring, where you can resort to and utilise your bills receivable to raise funds. However, it will only suffice if the bills receivable are high enough as the funding required.

These loans are available with almost every financial institution, although against a varying rate of interest and repayment clauses.

Most lenders disburse funds under these options as unsecured loans, which is why these often come with a high rate of interest and stringent eligibility criteria. These requirements are often hard to fulfil, especially with start-ups and new business owners who may not have the recommended turnover or credit rating to meet the requirements.

However, there is an alternate source of financing available at an affordable rate of interest and easy-to-meet eligibility criteria.

Gold has, since long, been used as a medium of transaction and utilised to fund one’s immediate cash requirements. In recent years, with such lending becoming more organised, it has emerged as the most viable option to avail a substantial corpus. You can, thus, avail funds by pledging your gold jewellery; and utilise the same as a working capital loan efficiently.

Gold Loans for Your Working Capital – The Benefits

Gold loans, offered by Rupeek Fintech Pvt. Ltd., can easily be considered as the best form of business financing available in today’s market. There are several reasons behind it; let’s take a look at some of them!

  • Highest loan to value (LTV) and affordable interest rates –

LTV refers to the percentage of the gold’s value that can be availed as a loan at maximum. You can avail the highest LTV with Rupeek at the lowest interest rates, making this gold loan an excellent avenue to avail substantial funds.

  • Instant doorstep availability of financing –

One of the most remarkable features of this advance is its instant availability, allowing you to meet your financial requirements without delay.

With Rupeek Fintech Pvt. Ltd.’s first-in-market doorstep service, you can apply for the loan and complete all necessary steps required for its sanction from your home itself. After applying for the advance through its app or via the website, a duly appointed loan manager visits you at your house for KYC formalities and valuation of your gold.

The loan amount is approved and disbursed within only 30 minutes. The loan manager leaves with your gold only after the loan amount is transferred to your account.

  • Minimal documentation –

While applying for a gold loan, you only need to submit some basic KYC documents like identity and address proof. You do not have to submit any proof of income like ITR, or other documents, unlike other loan options, making it easier for you to avail it without hassle.

  • Credit line facility –

Rupeek Fintech Pvt. Ltd. makes borrowing easier with its exclusive credit line facility – Rupeek Quick. This feature allows you to borrow the funds as per your requirements, to address your financial needs. As an additional working capital requirement can arise at any time, this line of credit allows you to fulfil last-minute funding needs conveniently.

This feature is especially beneficial and affordable because it requires you to pay interest only on the amount you borrow from the entire sanctioned amount.

Thus, similar to a bank overdraft facility, it offers several advantages over conventional modes of financing.

  • Safe and secure transaction –

Your pledged gold, once collected, is transported in a GPS-trackable bag, and is safely stored in the vault of the nearest partner bank of your lender. Moreover, all jewellery is insured whenever an agreement is drawn, which mitigates any risk of theft or accidental loss during transportation or period of pledge.

This extra layer of safety secures your asset, until you repay the loan amount borrowed and release it from the pledge.

Considering all the above mentioned details, you can easily understand that a gold loan serving as a working capital loan stands as one of the most economical, yet beneficial sources of operations financing. With transparent policies, customer-centric approach, and discreet loan approval and disbursal, you can easily avail the necessary funds required to finance your business endeavour, without liquidating your savings.