Working capital financing forms an essential part of debt requirement for businesses, both large and small. Sufficient availability of such funds, in both the short and long term aspects, helps a business meet its operational needs with convenience.
It is the difference between a business’s current assets and current liabilities, which stands as a measure of a business’s ability to fulfil day-to-day funding needs.
Growing companies often come across an increasing working capital requirement, non-fulfilment of which can significantly hamper achieving optimum operational efficiency. A CRISIL report justifies this gap.
- 1,700 – Number of MSMEs facing an increasing gap between current assets and current liabilities since the year 2015 as per CRISIL.
- 13% – Rate at which working capital requirement is increasing for manufacturing businesses.
As for enterprises operating in the service sector, this rate is a notch higher at 16%. It calls for businesses to raise additional funds via financial institutions and other available sources to operate efficiently.
While the reasons for this gap can range from factors like payment delays to credit policy and inventory planning of a business, you must know about suitable sources to fund this gap.
Here’s a guide on sources of working capital you can utilise to meet the current assets-current liabilities gap and optimise business operations.
Sources to finance a business’s working capital
Due to a prospect of rapid growth in the MSME sector, it has also seen a high demand for working capital financing.
- 70% – Percentage of business finance used to meet working capital needs.
- Rs.69.3 trillion – Total credit demand from MSMEs in 2017.
It thus represents the increasing need of working capital finance for the Micro, Small and Medium Enterprises. So, check out the sources of working capital you can utilise to raise the necessary finance.
- Working capital loans
Financial institutions provide customised working capital loans to help a business meet its funding needs with ease and convenience. These high-value advances are collateral-free too, meaning you do not need to mortgage an asset to avail them.
Availing a WC loan allows you to overcome roadblocks in day-to-day financing and can be utilised for several business requirements like –
- Managing fluctuations in sales.
- Purchasing additional raw material.
- Stocking up inventory.
- Making advance payment of supplies.
- Funding the delay in debtor payments.
- Meeting overhead costs with ease.
The financing is available against minimum eligibility criteria and document requirement.
- Term loans
A term loan is available for short as well as long repayment tenors to help you meet working capital requirements. You can avail short term unsecured advances such as business loans of up to Rs.30 lakh, a type of term loan, to fulfil the funding needs of your company’s day-to-day operation.
The loan is also available to meet other financing requirements of a business such as investment in infrastructure, purchase of plant & machinery, and such other big-ticket funding needs.
Lenders like Bajaj Finserv provide quick and simple processing to make it easy to avail these loans. You can thus fulfil your immediate funding needs with the advance. Plus, you can also manage your loan account online through the available customer portal.
- Invoice financing
Invoice financing is also among the common sources of working capital for all types of businesses. The method allows enterprises to finance business invoices that remain unpaid from debtors.
Since the existing debt blocks necessary funds required for daily operations, invoice financing allows businesses to factor bills to a third party at a discounted rate and raise funds. It enables a business to meet immediate expenditures.
- Flexi Loans for business
Another source of financing an enterprise’s working capital is Flexi Business Loan from Bajaj Finserv. It not only provides sufficient finances but also offers the flexibility of repayment. The facility allows you to withdraw multiple times from a pre-sanctioned loan amount and interest needs to be paid only on the amount withdrawn. It thus also reduces the EMI amount and makes repayments affordable.
So, assess how much working capital your business needs and choose a suitable source to fund the requirements. You must also compare the lenders to choose a financier who offers sufficient funds while also providing ease of repayment. Also, choose a suitable tenor that allows you to repay the loan conveniently.