Every company requires cash to run its daily operations. When it does not have enough revenue to do so, it is a good idea to take a working capital loan. It is possible to extend a previously taken loan too.
Whether big or small, every business runs on four factors of production: land, labor, capital, and entrepreneurship. Though all these factors are important, one could say that capital is probably the most important wheel that runs the business regularly. Without money, no enterprise or company will be able to run.
What is Working Capital?
The money that an entrepreneur uses to run the day-to-day operations of an undertaking is called working capital. Working capital is what remains of a company’s current assets after deducting its current liabilities or debts. Current assets can include inventory, payments receivable as well as marketable securities. When sold or converted into cash, these are some of the ways a company can raise cash or funding for daily operations.
What is a Working Capital Cycle?
The amount of time it takes to turn a company’s assets into cash is called a working capital cycle. Since every company deals with different kinds of assets, the working capital differs from industry to industry and within the industry. If a company raises enough working capital to pay off its debts and fund its everyday operations, we say it is efficiently managed. This means that a company can free up cash almost instantaneously by shortening its working capital cycle.
Why is the Working Capital Cycle Important?
A company’s ability to raise working capital is an indicator of how well it performs in areas such as clearing its inventory, debt management, revenue collection, and payments to suppliers. Because of the different nature of industries and the goods and services they deal with, it is practically impossible for all companies to convert their current assets into money to service their debt, which may include paying their suppliers, accrued expenses, and notes payable.
When Are Working Capital Loans Needed?
It may so happen that due to the nature of its business, your company, at a given moment, may not have enough money to run its daily operations and fuel its expansion plans. To cope with this scenario, a company may borrow a working capital loan. It would help if you kept in mind that a working capital loan is not taken to buy long-term assets and take care of immediate and short-term needs. Some working capital loans are unsecured, meaning that there is no compulsion for you to provide collateral to secure the loan. Try to take such a Working Capital Loan for your business.
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What Should You Watch Out When for Taking a Working Capital Loan?
With a working capital loan, you are in a position to deal with any financial difficulty that may arise. You may use it to cover unforeseen losses or find that you need to meet additional expenses. You have not generated enough revenue to do so as your business is seasonal.
A working capital loan is structured so that it helps to inject money that you require for your short-term needs. Although approval for working capital loans is granted more rapidly than a personal loan or home loan and much less paperwork is involved, taking a working capital loan is not always easy.
You have to consider your capacity to repay the loan, which means you have no excuse not to pay the EMIs if your business does not do well or even fails. Due to their high-risk element, working capital loans are likely to carry high-interest rates. All this means that you need to be in a firm financial position and need a little support by taking a working capital loan.
Bajaj Finserv offers Working Capital Loans of up to Rs.30 lakh to help you continue running your business without any financial roadblock.