Frequently Asked Questions about Working Capital Loans
A working capital loan is a type of business loan provided by banks and financial institutions
to finance the day-to-day operations of a business, such as purchasing inventory, paying
salaries, and covering other short-term operational expenses.
Working capital loans can be availed by businesses of all sizes, including SMEs, MSMEs,
startups, and large enterprises. Applicants must typically demonstrate a stable business
history, good credit score, and sufficient revenue to qualify.
Eligibility criteria may vary by lender but generally include:
o A registered business entity (e.g., sole proprietorship, partnership, private limited company)
o Minimum business vintage (usually 1-3 years)
o Good credit score and financial stability
o Satisfactory revenue and profitability
o Business and personal KYC documents
o A registered business entity (e.g., sole proprietorship, partnership, private limited company)
o Minimum business vintage (usually 1-3 years)
o Good credit score and financial stability
o Satisfactory revenue and profitability
o Business and personal KYC documents
The loan amount depends on the business’s financial health, revenue, creditworthiness, and
the lender’s policies. Typically, lenders offer working capital loans ranging from a few lakhs
to several crores of rupees.
Interest rates for working capital loans in India vary based on factors such as the lender, loan
amount, loan tenure, and the borrower’s credit profile. Generally, interest rates range from
10% to 20% per annum.
Loan tenures for working capital loans are usually short-term, ranging from 6 months to 3
years. The exact tenure depends on the lender’s policies and the borrower’s requirements.
Common fees and charges include processing fees, administrative fees, documentation
charges, and prepayment or foreclosure penalties. It's important to review the loan
agreement for a detailed breakdown of these costs.
Required documents typically include:
o Business registration documents (e.g., GST registration, business licenses)
o Financial statements (balance sheet, profit & loss statement)
o Bank statements (usually for the last 6-12 months)
o KYC documents of the business and its owners
o Income tax returns (usually for the last 2-3 years)
o Details of existing debts and liabilities
o Business registration documents (e.g., GST registration, business licenses)
o Financial statements (balance sheet, profit & loss statement)
o Bank statements (usually for the last 6-12 months)
o KYC documents of the business and its owners
o Income tax returns (usually for the last 2-3 years)
o Details of existing debts and liabilities
Yes, many lenders offer unsecured working capital loans that do not require collateral.
However, these loans may come with higher interest rates and stricter eligibility criteria.
Secured loans, backed by collateral such as property or inventory, generally offer better
terms.
Defaulting on a working capital loan can have serious consequences, including damage to
your business and personal credit scores, legal action by the lender, and difficulties in
obtaining future financing. It is crucial to communicate with your lender if you face
repayment difficulties to explore options like loan restructuring or rescheduling.