Short Term Financing through Working Capital Loans ! Is it a good idea?

Anyone who’s running a business understands that it takes money to generate more money. Therefore unrestricted access to working capital is vital — whether you’re just starting out or have lofty plans to further augment your existing business. It’s conceivable that every business, small or large, may need extra capital routinely to ensure smooth functioning.

Short term financing or Working Capital Loans refer to loans specially formulated to cover immediate short term financial wants. They are a flexible tool to better handle cash flow and to take utmost advantage of new business opportunities that may come along. For example, you might have a business that needs extra funds prior to the holiday season. Obtaining a short term loan would give you the capital you require to build up your inventory before the holiday season sets in— even if your business is experiencing shortages of cash flow right now.

Working capital loans

Working Capital

Working Capital Loans operate exactly like conventional loans— you receive the amount of working capital agreed upon upfront, which you’re required to pay back to the lender, along with the lender’s fee. The operational similarity aside; the short term loans differ from the traditional loans in the sense that the repayment period tends to be shorter (up-to 12 months or extending up-to 18 months in some cases) and payments to the lender are often made daily. Also, loan amount obtained is substantially smaller, as the objective is not investment but covering operational costs.

Since these loans are paid off quickly, typically within a year, they’re often hugely costly. Much more extravagant than an average term loan.

To help you do the math, imagine you take out an INR 1,00,000 short term loan to cover your working costs and the lender has a factor rate (daily rate on the loan) of 1.18. That means you’ll have to pay back INR 1,18,000 to the lender. If you’ve got to pay back the amount within 12 months and there are 22 payment days in a month- then 264 payments would have to be made to fully repay the loan (Assuming the lender allows the option of making daily payments). The amount of these payments would be INR 446.96. That would make your Annual Percentage Rate (APR) 33.54%! Usually though, most contracts would require you to pay back the loaned funds on a monthly basis and very rarely on a daily basis.

Despite the monumental costs involved, working capital loans loans are immensely popular with businesses owing to their versatility and flexibility. It may take as little as 2 working days to obtain a short term loan, ensuring a speedy access to funds. These loans may also sometimes require collateral,i.e, they may be secured or unsecured. The interest rate charged from the businesses and borrowable amount are contingent on the revenue history and credit rating of the business, amongst other things. All things considered, a short term loan may be just what you need to help your business ford through rough waters!

For further information feel free to contact us on our toll free number:1800-300-20439 or you can submit your information on and our executives will get in touch with you.

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