How to get Working Capital Loan
First, we will understand what working capital. Working capital is the money that is used for the day-to-day operations of a business, such as purchasing raw materials, paying rent, paying electricity bills, and paying taxes. The loan provided by banks for these purposes is called a working capital loan. It is a short-term loan. It is not used for long-term investments.
There are different types of working capital loans
1. cash credit facility
Where a businessman is given a limit, and he can withdraw money from that account as per his needs. This money can be used for daily business expenses like purchasing raw materials, paying salaries, or clearing short-term payments. For this, the bank may also ask for collateral security, such as a house or office. A cash credit loan is generally for 12 months, and if you want to continue it, you have to renew it after 12 months.
2. overdraft facility
In this, if a businessman maintains a good current account, the bank can provide a limit, allowing him to withdraw more money than the available balance in his account. In some cases, banks also provide loans based on stock or other assets. If the business does not have stock, then the loan can be given based on other assets.
Apart from this, working capital loans are used to run production and business operations. For example, if a product takes time to be manufactured and payment is not received immediately, then during that period, the bank provides working capital support to keep the business running.
Loan Eligibility
The eligibility criteria for taking a working capital loan depend on the bank and the type of working capital loan you are applying for. Generally, the applicant should be at least 25 years old. The person applying for the loan should have ownership or a significant role in the business, such as being a director in a company. In most cases, banks prefer that the applicant is actively involved in the business operations.
Apart from this, banks may also check the applicant’s business experience and basic industry knowledge. For example, if you are running a specific type of business, you should have proper understanding or skills related to that field. While prior experience is helpful, it is not always mandatory, especially for new or “greenfield” businesses. However, banks still evaluate whether the applicant has the capability and knowledge to run the business successfully.
Loan Approval & Percentage
When you apply for a working capital loan, most reputed banks generally finance around 70% to 80% of your business requirement, depending on your profile and financial strength. In some cases, loans may also be available through other connections or sources, but the rate of interest may be higher.
For secured loans, you may be required to provide additional collateral or assets. Having strong financials and proper documentation increases your chances of getting the loan approved easily.
Documents Required (Proprietorship)
To apply for a loan, the required documents depend on the type of business. Here we are discussing the documents required for a proprietorship firm. For a proprietorship company, the owner’s KYC documents are required — PAN card, Aadhaar card, and photograph. All these documents must be submitted. Along with this, you also need to provide an address proof, which can be a Voter ID card, Aadhaar card, passport, electricity bill, or phone bill.
As mentioned earlier, if your Aadhaar card has your current address, then a separate address proof may not be required. However, if the Aadhaar card does not have the updated address, then you will need to submit an additional address proof.
Income Proof & Financial Documents
You need to provide income proof such as ITR, profit & loss account, balance sheet, and computation. All these documents should be properly filed and positive. After that, you need to submit the required banking documents as per bank requirements.
Bank statements for the last 6 months to 1 year are required. This depends on the bank — some banks ask for 1-year statements, while others may accept 6 months. You also need to provide GST returns for at least 1 year. If you already have any existing loan, then you must submit the sanction letter and statement of that loan as well.
Property Documents (If Applicable)
If the loan is secured, you will need to submit property-related documents such as the property deed, certificates, conversion certificate, building property tax receipts, etc. All these documents are mandatory for secured loans.
Partnership & Private Limited Company Documents
Now let’s talk about documents for a partnership firm — you need to submit all the documents required for a proprietorship. In addition, you must provide the partnership firm’s PAN card, partnership deed, and KYC of all partners. For a private limited company, you need to submit company-related documents along with KYC of all directors.
Interest Rate
The interest rate for a loan can range from 10% to 20%. It completely depends on the bank and the applicant’s profile.
How to Apply
You can apply for a loan through any online platform or by visiting a bank. Also approach a market agent, but make sure to verify whether the agent is authorized by the bank.
You can also choose our services. The contact number is provided in the description below. Our office address is also mentioned there, and you can visit for proper guidance.