What is a working capital loan ?

Businesses need capital to function smoothly. They have regular expenses that need to be met like salaries and other overheads. Businesses that have a temporary cash flow problem can avail of a working capital loan from banks and some other financial institutions to support their operational needs. Many businesses rely on working capital loans due to the cyclical nature of some businesses.

Take for instance a manufacturing company. During the 4th quarter of the business the operational efficiency of the organization needs to be met although the business enters a lean period and the sales are not as robust as in previous quarters. In such situation’s businesses rely on working capital loans to bail them out of a tough spot. These short-term corporate debts can be used to pay for the day to day operational expenses of the organization.

While the interest on working capital loan is low the exact specifics are decided case to case.

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Eligibility For A Working Capital Loan

The eligibility criteria for a working capital loan are similar to the ones required while applying for a business loan. To summarize here are some of the salient eligibility factors.

  • Age: The applicant must be between the ages of 25 to 65 years.
  • Profitability: The business should show some profit during the previous 2 years of operations
  • Regulation: The business should have been audited by a registered chartered accountant.
  • Turnover: The business must show a growth pattern in the last couple of years to be eligible for a working capital loan.

Documentation Required For A Working Capital Loan

  • KYC Documents such as age proof, address proof
  • Document to establish type of business (Proprietorship/partnership)
  • Certified copies of the Memorandum of Association
  • True Copies of the Articles of Association
  • Financial Results for 2 or more years audited
  • ITR for 3 years with the calculations
  • Applicants highest education qualification degree copy


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