Working capital is one of the most crucial financial metrics of a company that substantiates its current financial status. The funds allow a business to bear its short-term liabilities and meet daily operational requirements with ease. As per accounting calculations, the difference between a business’s current assets and liabilities is identified as its net working capital. Thus, robust working capital management is necessary to ensure the financial wellbeing of a company or a business. The working capital of a firm involves –
- Cash.
- Accounts receivable.
- Accounts payable.
- Inventory.
- Short-term liabilities.
Quite evidently, any deficit in working capital funds needs immediate attention, and a working capital loan can be a great way to address the same. While select financial institutions offer a working capital loan, choosing the best can be challenging due to the varying features and utilisations limits.
Nevertheless, individuals can follow the below-mentioned tips to get this fund with ease and retain the day-to-day productivity of their business.
Ways to avail of a working capital loan with ease
Once you know why you should choose a working capital loan to fund business operations, you can consider following these tips to qualify for this credit.
Maintain a good credit score
Since credit score mirrors the creditworthiness of a borrower, business owners applying for an operating capital loan need to uphold a good credit score of 750 or above to gain instant approval.
To do so, they can also follow a few tips –
- Clear all existing debts.
- Pay credit card bills within the due date and in full.
- Avoid applying for multiple loans simultaneously.
- Lower FOIR ratio.
All these financial habits not only help to avail a loan but also help with working capital management to a great extent.
Meet eligibility criteria
Like any other business finance, individuals need to fulfill specific eligibility criteria to be eligible for a working capital loan. Nevertheless, to ensure a hassle-free approval, keep all the relevant documents handy as well. Do not forget to check the lender-specific criteria as well to get the required funds conveniently.
Alternatively, one can also opt for a business loan from lenders like Bajaj Finserv at competitive interest rates and flexible repayment options to meet the funding needs.
The financial institution also extends pre-approved offers that simplify and expedite the loan application process. Such offers are available on a range of financial products like business loans, personal loans, and many more. All you need to do is enter your name and contact number to check your pre-approved offer.
Showcase all income sources
Another great way to improve loan eligibility is to cite all income sources besides monthly salary or fixed monthly business turnover as per applicant profile. In this regard, individuals can mention their rental yield, income from fixed deposits, maturity amount of any life insurance policy, gains from mutual funds, and the likes.
It will allow lenders to assess the loan applicant’s repayment capacity suitably.
Lower credit utilization ratio
Before applying for a working capital loan, business owners also need to lower their credit utilization ratio, preferably below 30% of the available funds. In this regard, proper working capital management can also be of great help to ensure maximum productivity out of limited resources.
Substantiate loan purposes
Often business owners tend to neglect this factor of explaining the purposes of availing the short-term loan. Additionally, if they can also show the projected turnover of the investment, a lender will likely sanction the advance based on income source suitability.
Moreover, besides replenishing the purposes of such fund requirements, individuals also can utilize this loan for the following purposes.
- Scaling up business operations.
- Paying overhead.
- Hiring seasonal workers.
- Addressing contingencies effectively.
- Boosting the liquidity of a firm.
Thus, a suitable businessperson’s guide to working capital loans will eventually contribute to a boost in a firm’s liquidity by projecting a positive image of the same. Nevertheless, it will be wiser to learn some practical working capital management skills to ensure sufficient business growth.