Working Capital Loans For Small Businesses: The Eligibility Criteria

How to Get Working Capital Loan To Expand Your Business – Clix Blog

If you are an entrepreneur and need ideas to get capital for your new business, you should read this article. For a growing business or start-up, capital is an important thing. So to help you, in this article, we will talk about how you can get working capital loans for small businesses.

Working capital loans are given or taken to fund the daily needs of a business or start-up. New businesses and start-ups are usually in need of capital in the initial stage. As they are new to the field, they might not be generating sufficient revenue. Thus, in need of money, working capital loans can help them.

Also, seasonal businesses do not have a regular flow of revenue. Working capital loans can also help such a business in many ways, if you want to see the growth of your business and make a lot of profits as well. 

You already know what working capital loans are and their purpose. We are here to discuss working capital loans for small businesses. But before we get into that, let’s look at some other types of loans that might be suitable for your business.

Types of business loans

Start-up loan: As the name suggests, start-up loans are especially for growing start-ups and new businesses. Since such a business might not have generated much revenue and their credit history might not be clear, the borrower’s personal credit history is checked for giving loans.

 The lender might also look at the recent turnovers and profits of the business. This helps the lender in deciding the amount of the loan, the interest rate, and other things. 

 This is a type of unsecured loan and hence the borrower does not have to pledge any collateral for this loan. 

The only criterion for this business is that the business should be registered and legal.

 Thus, it is easy for new businesses to avail this type of loan.

 Term loan: This is a common type of business loan. Generally, most big and medium businesses take a term loan. The amount of money given as a loan is decided by the lender.

 The lender looks at the borrower’s business credit history and decided the amount. Since this is a term loan, the tenure or the time is given to returning the money is always fixed.

 This loan can be secured and unsecured. This means there can be collateral provided by the borrower or it can work without collateral as well.

 The tenure given for unsecured loans is 1-5 years while for secured loans it is up to 15-20 years depending on the value of the collateral provided.

 Working capital loan: You already know about this type of business loan. 

 The purpose of this loan is to provide capital to small and seasonal businesses and help them with their daily money needs.

 This is also an unsecured loan. Hence no collateral is required to avail of this loan.

 Thus, this is also a good option for start-ups and small businesses.

Now let’s look at the eligibility criteria for availing of working capital loans for small businesses.

Eligibility criteria for working capital loans:

Age of the borrower: The borrower must be a minimum of 21 years old while taking the loan and should not be older than 65 years old when the loan matures.

 Business turnover: This criterion might vary from bank to bank. But in general, your turnover should be more than 1 crore annually.

Nature of business: The nature of business is also one of the criteria of eligibility for working capital loans. It depends on whether the business is run by an individual, partners, is it private or public, the products of the business, etc.

Age of the business: The age of the business or business vintage is also a criterion for eligibility. The business must be operational for at least the past 2 years.

 But like the business turnover criterion, this criterion may also vary for different banks.

 Business experience: To avail of the working capital loan, you must also qualify the business experience criterion. This criterion also varies from bank to bank.

 But generally, banks accept an experience of a minimum of 2 years of the same business and at the same location.

These are some of the most important eligibility criteria required for availing of a working capital loan. From the criteria listed above, you can see how working capital loans for small businesses are best.

Now let us look at the benefits of working capital loans for small businesses

Benefits of a working capital loan

The first and the most important benefit of a working capital loan is that it is a type of unsecured loan. Hence, it does not require any collateral.

Thus, it can be really helpful for businesses that have not yet expanded their business assets.

The second benefit of a working capital loan is that it fulfils all the short-term needs of a small and growing business. 

The third benefit is that working capital loans also have flexible repayment methods. Thus, it helps small and growing businesses in planning and managing their payments in a better way.

The fourth benefit is that the process of availing of a working capital role is very easy. Even if you are new to the field and do not know much about taking loans, you can easily avail a working capital loan.

All you have to do is fill out an online form for it and submit all the necessary papers and documents. The bank will do the rest and you will get your loan money quickly and easily.

The fifth benefit of a working capital loan is that it helps in maintaining a regular flow of money. As discussed before, even if your business is not able to earn enough profit yet, the working capital loan can help you fund your daily business necessities. If you have a small and growing business, surely consider this loan as an option.