(Loan Amount from Rs. 10 Lacs to Rs. 25 Crores)
A working capital loan is a loan availed by a business to cater everyday functioning of a business as well as to fill the short term gap between accounts receivable from customers & accounts payable to vendors. This gap or time period between payment receivable from customers & payment given to suppliers is called as working capital gap. Lower the gap, better is the financial health of the business. Working capital loans are also availed by business to cater seasonal variations in sales like picking up of sales in festival time.
Secured working capital loans:
These are high volume working capital loans and are backed by property collateral as well as stock of raw material and finished goods. It is given by banks in form of cash credit (CC Limit), overdraft (OD Limit) , term loans, line of credit etc. Short term Working capital demand loan (Wcdl) is also the form of this loan availed by business. Time required for sanction of such secured working capital loans are 15-25 working days.
Unsecured working capital loans
An unsecured working capital loan is a loan offered by banks and financial institutions based on the credit worthiness & repayment capacity of a borrower. No property collateral is taken as security for this loan . It is offered mostly in form of term loan with fixed EMI repayment per month. There are two basic criteria looked in to by a lender, while assessing unsecured WC loan proposals
- Repaying capacity of a borrower
- Intention of a borrower to repay.
Apart from these 2 main criteria, other criteria required for availing unsecured business loans are Business Stability of minimum 2 yrs, & Age of borrower or main promoter of business requires to be less than 70 at the end of loan tenure.