A business requires a working capital loan for a steady cash flow to operate its day-to-day operating activities. Often, small and medium enterprises face seasonal demand shortages, leaving less working capital conserved and unable to meet temporary working expenses. However, continuing operations during this lean season is important to prepare for the upcoming high season, when sales will be high. Working capital loans for small businesses help with this.
Working capital loans help companies obtain balanced capital so they can meet temporary expenses. Available to MSMEs, self-reliant individuals, public/private companies, and other business units, these loans help increase business cash flow and meet critical needs, such as salary payments, utility bill payments, and inventory management. , Etcetera. To access these finance options, loan providers offer working capital loans with a simple application process and relaxed eligibility standards.
Eligibility Criteria for Working Capital Loans
When getting a working capital loan If you are making an application for small businesses, here is a list of working capital loan eligibility standards that you should remember:
Age of Borrower
Minimum and maximum age requirements will vary depending on the lender you select. Most lenders offer working capital loans to applicants in the age group of 21-65 years. However, more related working capital loan funds also offer loans to borrowers with requirement standards who are at least 18 years of age.
The Business experience of the borrower is considered a very important factor for availing the loan. Many lenders consider at least two years of experience in the current business as a requirement for loan approval.
Nature of Business
The availability of a working capital loan also depends on the nature of your business. Most of the lenders provide working capital loans to entrepreneurs, partnership firms, public/private companies, MSMEs, self-reliant individuals, professionals, manufacturers, and traders. However, the list of specific types of businesses that are eligible for working capital loans for small businesses may vary from one lender to another.
Turnover requirements for working capital loans depend on the lender selected. For example, if you opt for working capital finance from Lendingkart, you will need to show a minimum turnover of more than Rs 90,000 in the last three months.
Business vintage, generally the longevity of the business, is another important working capital loan criterion. Many lenders require that your business be in operation for at least 2-3 years, depending on your loan provider. However, this may depend on your lender.
CIBIL Score establishes your creditworthiness as an entrepreneur. Naturally, this is one of the most important eligibility criteria to get a working capital loan. Most lenders consider a CIBIL score of 700 or above ideal for sole proprietors, self-employed professionals, and entrepreneurs.
Creditworthiness of the business
Apart from your individual CIBIL score, loan-sharing partners also mediate the creditworthiness of your business. Company credit reports represent the credit history of the business as well as its CIBIL rank. This is done to ensure that the company does not default on the amount borrowed.
Financial history of the business
This is an important working capital loan eligibility standard for most lenders. The business in question must demonstrate a reliable financial history with stable profits. Some lenders require proof of 12 months of work stability.
Lenders examine your business’s profit and loss statement, IT returns, and balance sheet to ensure its long-term profitability. The business in question must demonstrate at least two years of profit in its books to be eligible for working capital loans for small businesses.
Ownership of Collateral
Although most lenders offer unsecured working capital loans to small businesses, you may have to choose a secured loan if you need more money. In these types of cases, the lender will evaluate whether you have the right type of collateral. Collateral usually includes assets such as residence, office, warehouse, security, and gold.
Some other eligibility considerations
Apart from the above Working Capital Loan eligibility standards, here are some other prerequisites that you should remember:
- Your business must not be blacklisted from the finance list. In addition to the business experience requirement mentioned for your current business, some.
- Businesses offering loans may have full business experience standards, which can be up to 5 years.
- The company should not have any previous record of loan default with any financial institution.
- The physical office of the company should not be on any blacklisted location list.
- The efficiency security amount may vary depending on the nature of the business, creditworthiness, and profitability.
Documents required to apply for a working capital loan
You will need to submit documents to prove your working capital loan eligibility. Here is a quick overview of the documents required for small businesses to apply for a working capital loan:
- To prove photo identity: Aadhar Card and PAN Card of the applicant
- Bank Statement: Account statement for the last 12 months
- To prove business registration: Business Registration Certificate, Sales Tax Certificate, GST Filing, Trade License, VAT Registration, or TIN
- To prove income: Latest ITR Income Commutation, Profit and Loss Account, Balance Sheet for last two years (accredited by a registered CA), and security documents (if applicable)
- The Partnership Deed: Applicable if the company is a partnership firm.
PAN of Company: Applicable for Limited, Private Limited, LLP, and One-Person Firms.
Now that you have all the information about the Working Capital Loan eligibility standards and documents, you can make an application in a jiffy online. You can choose the working capital and capital requirements with a financial constraints strategy. Make a properly-thought-out proposal for these funds and how to replenish them before then.