All about working capital loans for small business
An entrepreneurial wave has engulfed the day. At present, the number of new (recognized) startups is well over 14,000, a terrific rise from 733 (in 2016-17)—one major factor being the rise of fintech players in recent years. Thanks to them, all businesses, especially those that start from scratch, can now fuel their startups with easy money or “working capital loans”, often with no collateral.
The fundamentals of business are quite simple & universal:
Money makes money: Startups earn more when they invest more. However, money is a complex entity, often because our markets are plagued with fatal myths, like this one:
Loans are BAD; because Loan= cash crunch= business failure.They tell you that you are already a failing enterprise if you are considering a loan.
However, we’d beg to differ. We say a smart working capital loan can build a roadmap to IPO listings! (You’ll agree as you read along)
What is Working Capital Loan?
We often dread a loan for its never-ending cycle of EMIs. But unlike a home loan or a car loan, a “working capital loan” is much easier to avail and vital for a business
Working capital is a continuous want; one needs a consistent cash flow to pay the people who work for you (“payroll”), to pay the “rent” for the land used, for the machineries, and to restock components/ finished products for future needs (“inventory”).
Company revenue may fluctuate monthly, seasonally or quarterly, but cash needs don’t. In short, working capital is the money that keeps your startup going on a day-to-day basis. And a working capital loan makes sure you always have enough working capital in hand.
Types of Working Capital Loan available for SMEs & Entrepreneurs:
Working capital loans are basically two types: Secured loans (collateral required) and Unsecured loans (without collateral).
Some popular working capital loans are:
- Bank Overdraft/ Line of credit: This loan is gained through a pre-approved withdrawal limit on your current bank account.
- Merchant cash advance/Factoring: This is the loan availed against future credit transactions instead of the current sales receipt; here, the fees can be high, and it might affect your future credit score too.
- Short-term loans/Installment loans: a secured loan type, this is one of the better-known working capital finance options used by Indian SMEs. It is the money lent against a fixed interest rate for one year or less.
- Business Credit cards: Corporate cards like the EnKash Credit Card are unlike traditional loans, are used to finance unforeseen capital needs and can be your all-in-one virtual card for all business transactions.
- Equity Funding: Many early startups use personal resources or investors (family and friends) against the startup’s part (equity share).
- Trade creditor: This is the loan availed on placing bulk orders. Usually, suppliers lend such loans to SMEs.
Why & When do you need working capital finance?
Consider the following scenario: Prasad, a 32-year-old farmer, decides to start an Agritech startup.
He has the expertise, the technology and the human people. He decides to bet on his idea by selling some of his assets and is making decent revenue. People like his products, but product sale is limited.
There is also a backlog of non-payments from clients, which will take time to recover. In technical terms, his company’s liquidity (or cash in hand) is diminishing without affecting its market value.
His key concerns are:
- How does he pay his people for the following month?
- Should he make further purchases to stock up his inventory?
- Should he invest in marketing?
- Has he failed as an entrepreneur?
If you are living this dilemma, don’t fret! You are not alone. In India, millions of startup founders & merchants, from the smallest Kirana store to the largest supply chain owners, face this problem (or a part of it).
Many would agree that Prasad can perform much better if he gets monetary aid. And that is exactly where top fintech companies in India 2020, like the EnKash, enter the scene.
A Capital finance will help startups with the following:
- Fulfilling cash needs for rent, payroll, inventory, and other daily operations is vital for sustenance.
- Improve the company’s growth curve with marketing and achieve increased retail sales.
- Improve the company’s liquidity status until recovery from unpaid invoices.
- Invest more in future plans of expansion
Check your eligibility before approaching for a loan!
The most important criterion for eligibility is a good credit score. However, it is highly dependent on your annual profit & revenue, your outstanding debt and length of credit history, among other variables.
A good credit score for startup loans is 700. You can get easy loan approvals, even with a low credit score on platforms like EnKash.
EnKash also offers virtual EnKash credit cards for smart corporate payments and advanced control over your finances right at your fingertip! To know more, check out the link below:
5 Quick Ways To Get Financial Help From Lenders In India
Financial aid, in the face of an emergency, can be quickly availed through:
- Lending from friends and relatives for quick cash.
- Applying for quick, collateral-free loans on fintech platforms like EnKash (where the loans can be approved within 3 business days and zero collateral, all through a DIY interface).
- Mortgaging of land/ property and eligible assets against withdrawn amount.
- Applying under Pradhan Mantri Rozgar Yojana (PMRY) and other eligible government schemes (under PMRY, eligible candidates can avail up to 5 lakh of loan for business setup).
- Availing gold loans against mortgaged jewellery and valuables.
EnKash can help you fuel your business with instant approval credits
At Enkash, we strive to assist all our entrepreneurs and wonderful risk-takers to easily get past any financial roadblocks.
Revolutionizing startups with easy money, EnKash offers:
- Quick collateral-free loans in the least downtime- to help fuel your startup dreams
- A completely digital interface to create a hassle-free loan approval space.
- A 100% digital KYC for availing corporate cards like the all-purpose EnKash Credit Card.
- Minimal documents required to process your loan, with zero foreclosure charges.
- Once onboard, you can save much more with a DIY spend management system by tracking your expenses and transactions in real-time.
- Apply in less than a minute and redeem your rewards now.
To know more,visit: www.enkash.com. You can also click below on Signup Now and we will reach out to you soon.