{"id":7921,"date":"2021-07-02T10:12:12","date_gmt":"2021-07-02T10:12:12","guid":{"rendered":"https:\/\/www.kredx.com\/blog\/?p=7921"},"modified":"2023-10-26T05:51:18","modified_gmt":"2023-10-26T05:51:18","slug":"meet-short-term-obligations-with-5-working-capital-loans","status":"publish","type":"post","link":"https:\/\/www.kredx.com\/blog\/meet-short-term-obligations-with-5-working-capital-loans\/","title":{"rendered":"Meet Short Term Obligations With 5 Working Capital Loans"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"7921\" class=\"elementor elementor-7921\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-53dcaed3 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"53dcaed3\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-5858c3ad\" data-id=\"5858c3ad\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-57de148c elementor-widget elementor-widget-text-editor\" data-id=\"57de148c\" data-element_type=\"widget\" data-settings=\"{&quot;ekit_we_effect_on&quot;:&quot;none&quot;}\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p><i><span style=\"font-weight: 400;\">For any business, there is nothing more frustrating than a project coming to a stop due to a shortage of capital.\u00a0<\/span><\/i><\/p><p><span style=\"font-weight: 400;\">Working capital is a measure of a firm\u2019s liquidity required to meet the operating debt. Inadequate working capital indicates red flags in a company\u2019s operations, i.e., more money is tied up in current liabilities than assets. If a business runs out of money, it cannot cater to existing customers and may fail to acquire new ones.\u00a0<\/span><\/p><p><span style=\"font-weight: 400;\">This can result in struggles to expand the firm, take advantage of bigger projects, or remain afloat during turbulent times.<\/span><\/p><p><span style=\"font-weight: 400;\">When struggling to find short-term funds for your business, a <\/span><a href=\"https:\/\/www.kredx.com\/what-is-working-capital\/\" target=\"_blank\" rel=\"noopener noreferrer\">working capital<\/a> loan<span style=\"font-weight: 400;\"> is an effective way to give your firm the credit support it requires and meet short-term obligations. These customised products are the perfect vehicle to cover operating debt, and business owners can also use the funds to make smart investments for their firm\u2019s growth.<\/span><\/p><p><span style=\"font-weight: 400;\">Discussed below are 5 common <\/span><b>working capital loan<\/b><span style=\"font-weight: 400;\"> options available to companies to help them manage cash flow mismatch.<\/span><\/p><h2><b>5 Working Capital Solutions For Businesses<\/b><\/h2><ul><li aria-level=\"1\"><h3><b>Overdraft Facility<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">As the name indicates, an overdraft facility is a financial instrument that enables a business owner to withdraw money from their current accounts beyond their available account balance. The collateral pledged against a <\/span><b>working capital loan<\/b><span style=\"font-weight: 400;\"> determines the overdraft limit.<\/span><\/p><p><span style=\"font-weight: 400;\">Like any other financial product, the lender will levy interest on the borrowed amount till it is repaid. Overdraft is usually provided to individuals who have a long-standing relationship with the lender and maintain substantial deposits in their account.\u00a0<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Invoice Discounting<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">Bill or <a href=\"https:\/\/www.kredx.com\/working-capital\/invoice-discounting\">invoice discounting<\/a> is an asset-based financing option where businesses use their unpaid invoices to raise capital. Companies leverage their outstanding invoices, selling them to a lender to access a percentage of the receivable amount as a cash advance.<\/span><\/p><p><span style=\"font-weight: 400;\">For a business, bill discounting is considered a crucial financing tool that allows enterprises to bridge the fund realisation gap between sale and due date. This <\/span><b>business loan<\/b><span style=\"font-weight: 400;\"> helps such companies free up cash for business operations. Industries that use invoice discounting the most include construction, logistics, manufacturing, printing &amp; publishing, wholesale &amp; distribution, textile, and transport.<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Bank Guarantee<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">A bank guarantee is a unique unconditional undertaking that assures a vendor to pay the liabilities if the purchaser cannot settle their debt. This mode of financing promotes entrepreneurial activity by enabling the realisation of deals and purchases, which would not have been possible otherwise.\u00a0<\/span><\/p><p><span style=\"font-weight: 400;\">For example, Company A wants to procure raw materials from Company B on credit. If the latter is unsure about the former\u2019s repayment capacity, it can request a bank guarantee, which states that Company B can recover the amount from the issuing bank if Company A defaults on payment.<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Cash Credit<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">Like overdraft facilities, cash credit is a type of <\/span><a href=\"https:\/\/www.kredx.com\/supply-chain-finance\/working-capital\/working-capital-calculator\">working capital loan<\/a><span style=\"font-weight: 400;\"> that allows borrowers to utilise money without holding a credit balance in their account. Usually, a separate cash credit account is required to avail this facility, which is available against raw materials or receivables.<\/span><\/p><p><span style=\"font-weight: 400;\">Borrowers can withdraw funds within a predetermined limit set by the issuing bank as per prior agreements. Like revolving credit, interest is charged on the utilised amount and not on the sanctioned limit.<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Letter Of Credit<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">While a bank guarantee is a certificate issued to the vendor, a letter of credit is given from one bank to another. Essentially, it is a credit letter that guarantees that a buyer\u2019s payment to the vendor will be received in full and on time.<\/span><\/p><p><span style=\"font-weight: 400;\">The importance of a letter of credit in international trade is inexplicable. International dealings face several challenges like distance, local laws, and the lack of personal relationships. A credit letter serves as the guarantee and helps promote trade activity beyond borders.<\/span><\/p><h2><b>Working Capital Watchouts<\/b><\/h2><p><span style=\"font-weight: 400;\">When approaching a bank or NBFC for a <\/span>working capital loan<span style=\"font-weight: 400;\">, there are certain practices that businesses need to pay extra attention to. When availing credit, do your due diligence and avoid making hasty decisions.<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Enquire About Hidden Charges<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">For starters, read the fine print to find the actual cost of borrowing instead of the advertised price. Ask the lender about any hidden fee like inactivity and subscription charges.<\/span><\/p><ul><li aria-level=\"1\"><h3><b>Stick To The Estimate<\/b><\/h3><\/li><\/ul><p><span style=\"font-weight: 400;\">Never over-finance! Make a rough estimate of the funds required and take your balance sheet to your accountant. Get professional advice on how big a <\/span><b>business loan <\/b><span style=\"font-weight: 400;\">you need and what the credit terms should necessitate.<\/span><\/p><p><span style=\"font-weight: 400;\">After you have ironed out the specifics, head over to platforms like MANDII to browse business financing options. These marketplaces allow access to business loans from various financiers. You can select a loan offer as per your requirement and enjoy end-to-end solutions on the app itself.\u00a0<\/span><\/p><h5><b>Bottom Line<\/b><\/h5><p><span style=\"font-weight: 400;\">It goes without saying that working capital and capital management is of paramount importance, especially for the MSME sector. It enhances solvency by helping asset and equipment acquisition and management, establishes an uninterrupted supply of raw materials, and generates goodwill internally and with suppliers. When in shortage, a <\/span>working capital loan<span style=\"font-weight: 400;\"> becomes the perfect vehicle to help a business grow during good times and survive during the rough patches.<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>For any business, there is nothing more frustrating than a project coming to a stop due to a shortage of capital.\u00a0 Working capital is a measure of a firm\u2019s liquidity required to meet the operating debt. Inadequate working capital indicates red flags in a company\u2019s operations, i.e., more money is tied up in current liabilities [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7922,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[127],"tags":[1116,1090],"class_list":["post-7921","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-working-capital-business","tag-business-working-capital","tag-working-capital-loans"],"_links":{"self":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7921","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/comments?post=7921"}],"version-history":[{"count":4,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7921\/revisions"}],"predecessor-version":[{"id":15059,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7921\/revisions\/15059"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/media\/7922"}],"wp:attachment":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/media?parent=7921"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/categories?post=7921"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/tags?post=7921"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}