The most debilitating part of a growing business is the sudden “cash flow crisis”. The moment your business gets such a jerk in the fostering business, it makes you look for finances that can act like a shock absorber.
The business expansion which is one of the ways of generating better revenue is difficult or impossible without adequate financing. A business may not even be able to meet the orders that it currently has from the clients.
According to the National, Small Business Association’s 2017 Mid-year Economic Report around 35 per cent of small businesses do not have access to working capital hence it is preventing them from expanding their current business.
Nearly 20 per cent of the business owners reported that the lack of financing has compelled them to reduce the number of employees, and approximately 16 per cent say that they cannot finance increased sales,
The medium and small businesses have just 27 “buffer days” of cash in reserve. All these instances are proving the fact that businesses do face serious financial crises.
But where there is a problem there lies a solution too. Yes, you got it right there are a number of ways by which you can avail finance for the working capital.
HOW TO GET FINANCE FOR WORKING CAPITAL?
On stumbling upon this question on how to get or avail the requisite finance for working capital, the only answer that may strike your mind is the “loan from the banks”. But is it the only source to get the finance for your working capital?
Definitely, it’s a big no! Surely, financial institutions like banks can be a good option to get finance for working capital, but not the only option.
These days one may find several options for getting the finance for the working capital and other assets.
You can also avail collateral free loan by clicking on the link.
In the following sections, we shall be discussing six effective and reliable sources for getting finance for the working capital for your business.
Let’s get started!
1. NON-BANKING FINANCIAL INSTITUTIONS (NBFCs):
One of the best sources of getting working capital for your business is the NBFCs. They basically lend to MSMEs (Micro Small and Medium Enterprises) and mid-rated corporates.
The lending rates of NBFCs vary between 9%-18%. NBFCs are sector specific loan providing financial institutions. NBFCs consider the credit rating of the customer before offering a loan. The aim of the NBFCs is:
- Quick processing of loans and
- Provide flexible repayment timelines.
2. INFORMAL LENDING
Traditionally private money lenders were the only source of finance for funding working capital before the emergence of commercial banks. They offered loans to businesses for working capital with a higher rate of interest.
These are the local money lenders who finance small businesses with no credit footprint. These informal lenders are unregulated and are not governed by any legal authority.
Whereas, the RBI has complete control over banks and NBFCs, for more formal and fair financing for the working capitals. The sole purpose of informal lending is to make profits by charging high-interest rates.
Examples of informal lending sources are moneylenders, traders, friends, colleagues, etc.
Balaji Credits has helped many businesses to grow faster than before by helping them with collateral free loans.
3. LONG-TERM LOANS
Banks offer financing for the working capital against security. The business owner must pay interest on the entire amount of the loan from the date of sanction of the loan.
For availing such finance for your working capital to remind functional, you will have to provide some of your assets as collateral. Upon doing so, the banks may provide you with the required amount.
4. OVERDRAFT/CASH CREDIT LIMIT
An overdraft or cash credit is an agreement with the bank wherein you as the business owner can withdraw an amount more than his balance up to a specific limit. The interest rate is charged only on overdrawn balance amounts daily.
5. SHORT-TERM LOAN
A short-term loan is the loan period within which a fixed interest rate is charged for a maximum term of 12 months. If your business has a good credit history and you have maintained a friendly relationship with the lender, then it can allow you to get a short-term loan without securing any collateral for your working capital.
6. FACTORING OR ADVANCES
The Factoring working capital loan operates in a similar manner as the accounts receivable loans, the only difference is that the value of the loan is based on future credit card receipts. Such a loan type is perfect for businesses that accept credit card payments.
This shall be a good way of availing finance for your working capital and keep your business expanding without any barriers.
Need assistance on finance for working capital? Reach out our consultants to receive the best advice on the same.