Eligibility for Working Capital Finance
Applicants’ Age: All lending institutions across India require their loan applicant’s to be within 21 years of age at the time of loan application and not more than 65 years old at the time of loan disbursement.
- Nature of Business: The nature of your business is a crucial deciding factor. Lenders may prefer to fund a specific type of business over others.Typical businesses eligible for working capital loans are sole proprietorships, partnerships, private & public limited companies, traders, retailers, manufacturers, entrepreneurs, and businesses in the service sector.
- Business Turnover: The required business turnover rate also varies across lenders. Many banks and NBFCs require a minimum annual turnover of at least Rs. 10 to 12 lakhs. However, some lenders may require higher amounts depending on the loan amount.
- Business Vintage: The longer the tenure of a business, the better its credibility and eligibility. A business must be operational and profitable for at least 2 to 3 years to avail of the benefits of working capital loans.
- Business Experience: A self-employed business professional or non-professional must possess a minimum of 2 years of business experience with the same business and a total business experience of at least 5 years.
- Financial History: An impeccable credit history with zero defaults, stable financials, and continual profitability is essential for a working capital business loan eligibility criteria. Certain banks require a minimum income tax return of Rs. 2 lakhs per year on the business’s annual income.
- Source of Income: The applicant needs to clearly state their income source, be it from the business revenue or any investment.
- CIBIL Score: 650 to 700 is the ideal range for the business or the applicant if they are self-employed or sole proprietors.
- Financial Capability: A creditor will determine the ability of a business to pay back the capital loan amount. Lenders look through audited balance sheets, ITR filings, profit & loss statements, GST returns, and the like to determine profitability & financial health.
- Creditworthiness: A good credit score and a flawless credit history with no defaults are essential.
Ownership or Collateral Worthiness: For high-value business loans, the applicant/business owner needs to showcase their ownership of valuable business assets that may be required as collateral.
What is a Working Capital Loan?
The term working capital refers to the difference between a business’s current assets and liabilities. Substantial working capital is essential for a business to operate, expand, and sustain itself. The working capital value determines the immediate financial health of a company and the amount of liquidity it has for immediate expenses & payments.
A working capital business loan is an ideal way to finance day-to-day operations and decrease financial pressure during lean seasons, reduced business activity, and heavy sales fluctuations. A working capital loan can also act as a cash cushion when funds need to be reserved for essential expenses or future investments. Moreover, the short loan tenure makes these business loans perfect for stabilising cash flow, running everyday operations smoothly in a cash crunch, paying bills, salaries, advances & debts, upgrading infrastructure & managing overhead costs, and leveraging business opportunities.
There are quite a few different kinds of working capital loans. They are:
- Term Loans
- Overdraft or Cash Credit Facility
- Invoice Financing
- Letter of Credit
- Line of Credit
- Bank Guarantee
Post Shipment Finance
How to Apply for a Working Capital Loan?
All banks and NBFCs offer a simplified process for applying for a working capital loan. Applicants can either apply online or visit the nearest branch of the lending institution of their choice. They should be ready with electronic copies of all essential documents if they apply online.
Once a business loan applicant meets all the necessary eligibility criteria for capital loans, they need to submit specific documents. Below is a checklist of all essential documents required alongside the loan application.
- Duly filled application form.
- KYC documents and personal identification documents such as Aadhaar Card, PAN card, proof of residence (Voter ID card, driving license, passport) etc.
- Official certificates of business registration and incorporation
- Proof of continual existence (Establishment certificates, trade license, etc.)
- Last six to 12 months’ bank statements, income tax returns( both of the applicant & the business),
- Audited balance sheets and profit & loss statements
- Proof of business continuation such as sales tax certificate, ITR filings, trade license, etc.
- Lease or rent agreement, utility bills, etc. as business address proof
- Evidence of ownership, partnership deeds, articles of association
Yubi offers a unified platform where businesses can connect with a wide array of lending institutions and choose one at their discretion. We are India’s largest digitised corporate debt lending platform, enabling large, small and medium enterprises to avail of working capital loans, business loans, & numerous other loan products at attractive interest rates.
Powered by the latest technologies, Yubi allows lenders and borrowers to communicate seamlessly and monitor profiles without hassle. Analytics delivers key insights, machine learning automates all processes & matches businesses with suitable lenders, and an API-backed infrastructure makes everything simple, flawless, & instantaneous.
What are the Lending Rates for This Type of Loan?
Lending rates differ from one lender to another. Here’s a look at the rates offered by some leading domestic banks & NBFCs.
- HDFC Bank: 10.00% – 22.50% p.a.
- FlexiLoans: 1% per month onwards
- Axis Bank: 14.25% – 18.50% p.a.
- IDFC First Bank: 14.50% onwards
- Kotak Mahindra Bank: 16% – 19.99%
- Fullerton Finance: 17% – 21%
- Bajaj Finserv: 17% p.a. onwards
- RBL Bank: 17.50% – 25% p.a.
- ICICI Bank: 17% onwards
- Indifi Finance: 1.5% per month onwards
- Lendingkart Finance: 1.5% – 2% per month
- Tata Capital Finance: 19% p.a. onwards
- NeoGrowth Finance: 19% – 24% p.a.
Hero FinCorp: Up to 26% p.a.
Almost all major types of businesses can apply for one if they meet the working capital loan eligibility criteria. Sole proprietorships, public and private limited companies, partnership firms, micro, medium & small enterprises, business belonging to the manufacturing, trade, and services sector, and self-employed professionals & non-professionals can apply for a working capital loan.
The processing fees charged also vary from one lender to another. However, the standard amount charged is 2 to 3 per cent of the total loan amount.
The generic loan tenure for a working capital loan lies in the range of one to five years. However, at the bank’s discretion, borrowers can opt for tenures up to seven years.