Working Capitals Loans
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Working Capital Loans
A working capital loan is a loan that is taken to finance a company’s everyday operations. These loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers a company’s short-term operational needs.
Cash Credit / Bank Overdraft
Cash credit or bank overdraft is the most useful and appropriate type of working capital financing extensively used by all small and big businesses. It is a facility offered by commercial banks whereby the borrower is sanctioned a particular amount which can be utilized for making his business payments. The borrower has to make sure that he does not cross the sanctioned limit. The best part is that the interest is charged to the extent the money is used and not on the sanctioned amount which motivates him to keep depositing the amount as soon as possible to save on interest cost. Without a doubt, this is a cost-effective working capital financing.
Who Can Avail this Loan?
Cash credit loans are available for proprietorship firms, partnership firms, public limited companies, limited liability companies, etc. A business vintage of 12 months to 36 months is required to avail of this loan. The bank accepts residential, industrial, or commercial properties as collateral for the loan.
A working capital loan is money borrowed to finance the day-to-day operations of the business. This includes fixed, regular expenses such as rent for the factory shed and office, salaries and wages, office expenses, security costs, etc.