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How to Calculate Interest on Working Capital Loans

Financial requirements can trigger at any point of time for businesses and self-employed professionals. With the help of a working capital loan, you can take care of any such accidental financial requirement with ease. Working capital loans are largely offered to Micro, Small, and Medium Enterprises (MSMEs). Businesses like departmental stores, restaurants, retail stores, manufacturing services, and similar are eligible for this type of loan. The fund acquired from a working capital loan can be utilized to meet daily business operations and expenses of MSMEs.

Benefits of Working Capital Loan

  • Manage Financial Shortcomings

Every business experiences financial assistance at some point in time. In such a situation you can apply for a working capital loan and use the loan amount to satisfy all your business requirements.

  • Zero Collateral Required

Having a good credit history will help you get a loan with ease. A good credit score will push forward your eligibility criteria for securing unsecured working capital loans. This also means that you need not pledge your business assets, inventory, or anything similar to secure the loan. The bank will check and verify your credit history and if all seems good you will be provided with a loan with a fixed tenure to pay it back.

  • Grow your business

With a working capital loan, you get an extra budget allowing the freedom to try out new types of tactics and tools, such as social media marketing, event sponsorship, or publishing to grow your business. Making such changes might bring in a new wave of opportunity and further grow your business.

How to use a working capital loan?

A working capital loan can be used in multiple ways to ensure the smooth operations of your business. Let’s have a look at some of the ways it can contribute to your business.

  • Helps you manage sales oscillations

  • Acts as a cash cushion in case of financial urgency

  • Provides good financial backup and help retail businesses in stocking up inventories in bulk 

  • Offers smooth cash flow for your business during the low-revenue times of the year

  • If revenue lags, the working capital loan can help to bridge the payroll gaps

What is the interest rate on working capital loans?

On Finserv MARKETS, you can get collateral-free business loans to meet your working capital needs with interest rates starting from 12.99% p.a. The rate of interest also depends on multiple factors such as type of business or company, your business vintage, bank statements, and more.

How to calculate interest on working capital loan?

The following are the important factors that help to calculate the working capital loan interest rate:

  • The purpose for which the loan has taken

  • The size and scale of your business

  • Duration of the loan

  • The creditworthiness of the applicant

Working capital interest rates are considerably high, as these loans do not require any collateral and they mostly have a short repayment tenor. When calculating the interest on a working capital loan, the principal amount for the entire loan needs to be taken into consideration. Working capital is calculated by subtracting the value of all current liabilities from that of the current assets.

Working Capital = Current Assets - Current Liabilities.

Current assets include the business inventory, cash in hand, advance payments, and similar. On the other hand, current liabilities are the companies short-term debts, unpaid expenditures, outstanding payments to creditors, and similar. When businesses fall short of cash or assets liquidity to finance the short-term operational requirements, they seek working capital loans. This loan is a simple corporate debt borrowing, that is being used by companies to finance their daily operational needs.

Eligibility criteria of a working capital loan?

To avail a Business Loan for working capital loan, the following eligibility criteria need to be fulfilled:

  • The applicant needs to be between the ages of 22-55 years

  • A minimum vintage of 3 years is required for your business

  • Income tax returns of at least 1 year are required for your business

  • You should be a self-employed individual to be eligible for a working capital loan.

Documents required for a working capital loan

  • PAN Card

  • Identity, Address and Income Proofs

  • Proof of business existence, including registration certificate and business licenses.

  • Memorandum of Association (MoA) and Articles of Association (AoA)

Steps to apply for a working capital loan

The following are the steps to apply for a working capital loan online at Finserv MARKETS

  • Step 1: Fill in the online application form

  • Step 2: Specify loan details and upload the required documents

  • Step 3: Once the loan application is approved, the loan amount will get disbursed within 24 hours.

Adequate working capital is critical for SMEs to carry out their business operations seamlessly and achieve growth. The absence of working capital can cause undue stress on small businesses. Under these circumstances, a working capital loan can become a quick solution in fulfilling all the business requirements. 

Although a lot of big companies and businesses can avail collateral loans, mostly small businesses cannot afford to pledge collateral. But at Finserv MARKETS, small business owners can avail collateral-free loans with ease which would help them to reach their full potential. You can simply apply for a loan online and get pre-approved offers for an instant loan without pledging any security. This loan can be used for meeting working capital requirements, inventory and equipment purchase, and for other business-specific growth purposes.

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