Working capital is like the energy that keeps a company running every day. The working capital formula includes the money needed to keep everything moving. Think of it as a balance between what a business owns and what it owes right now. A company facing a shortage of working capital may seek help from investment bankers. It may secure a from a financial institution.

Current assets are a big part of this balance. They work like a financial safety net for businesses. They help companies manage sudden expenses, seize opportunities, and ensure smooth operations. Let’s focus on the key component of the working capital formula: “current assets.”

What are Current Assets?

Current assets are the assets that you can convert into cash within a year. This could be because you sell them, use them up, or they are part of your regular business operations. Think about the products you have in your store that you will sell soon or the money that your customers owe you. These are all current assets.

To understand how your business is doing, you look at something called the balance sheet. It’s like a financial photo that shows what you have (your assets) and how you got them (using loans or your own money). The balance sheet covers a specific time, usually a year.

On this balance sheet, is where you can locate your current assets right at the top. Why? Because they are the most liquid assets. We arrange these assets in a specific order, making it easier to turn them into cash when needed. This arrangement helps keep things organised. So, the more liquid the asset, the higher up on the list it goes.

What Can You Do with Current Assets?

Current assets are like your business’s handy toolkit. You need them to keep things moving. Here’s what you can do with these assets:

1. To Run Day to Day Operations:

• You have got inventory to stock your shelves and make sure customers find what they want.
• Paying employees is necessary.

2. To Invest in Your Business’s Future:

• Upgrading your equipment or getting a new office space.

3. To Stay on Top of Bills and Loans:

• To cover debt payments on time. 

Types of Current Assets:

Let us take a look at the variety of current assets at hand:

• Cash:
  Cash is a main asset, at the top of your balance sheet. It includes local and foreign money. It also includes business checking accounts, payments, customer receipts, and on-hand cash.
• Cash Equivalents:
  Cash equivalents are not as liquid as cash itself. These assets stand as liquid reserves, convertible to cash at a moment’s notice. It includes marketable securities, short-term government bonds, treasury bills, and money market funds.
• Accounts receivable:
  Accounts receivable consist of customer debts to your business. These dues usually transform into cash within a year. So, they’re tagged as current assets. Let’s say your interior company crafts a custom cupboard. And, the payment is pending upon delivery. This owed sum finds its place in accounts receivable.

If a good or service’s conversion to cash extends beyond a year, it shifts into the long-term asset realm. Then, it departs from current assets.

• Inventory:
  Inventory blankets your raw materials and unsold merchandise. This encompasses items that generally sell within a year. Prudent inventory management is important. Overstocking risks obsolescence or expiry, especially for perishable goods. On the flip side, understocking translates to missed sales and irked customers.
• Prepaid expenses:
  Prepaid expenses see their spot on the balance sheet, led by prepaid insurance. This category embodies upfront insurance payments. Insurance premiums precede the coverage period and companies settle them within a year. Rent, too, can strut its stuff as a current asset. Paying rent ahead of schedule earmarks it as prepaid rent. 

How to Calculate Current Assets?

Lay out your current assets on the balance sheet. Then, computing your total current assets is a breeze. Sum up all these elements.

Current Assets for Working Capital Formula:

Current assets help balance sheet analysis by calculating liquidity ratios. Ratios show asset-liability balance and financial health. Insights into fiscal well-being and capacity for financial commitments. Let’s take a look at a few familiar forms of liquidity ratios:

FlexiLoans’ Working Capital Loans:

FlexiLoans cater to the financing needs of small and medium-sized enterprises (SMEs). It addresses the challenges they often encounter when seeking small business loans. 

The advantages of opting for FlexiLoans Working Capital Loans are large:

• Faster Processing: You can avail a working capital loan in three days. But, you must provide the fulfilled paperwork.
• Ownership Retention: Quick and collateral-free access to credit.
• Cash Flow Enhancement: operational continuity despite cash reserve shortages and fluctuations in sales.
• Credit Score Improvement: There are some who can’t meet bank loans due to low credit scores. Flexiloans provides a chance to enhance credit scores. It reports business loan transactions to the Credit Bureau.

SMEs can thrive with FlexiLoans. They can overcome the hurdles that often hinder their growth. At Flexiloans we offer MSME Loans, Term Loan, Business Loan for Women, and to many more industries. Visit the Flexiloans website, today!

FAQs

Q. 1. What sets current assets apart from non-current assets?

Ans: Current assets are short-term. They can turn into cash within a year or cycle. Non-current assets are long-term, beyond a year or cycle.

Q. 2. How does working capital get affected by current assets?

Ans: Current assets include cash, accounts receivable, and inventory. Current liabilities encompass accounts payable, taxes, wages, and owed interest. Working capital arises from the difference between current assets and liabilities.

Q. 3. What else is working capital referred to as?

Ans: Working capital is also known as net working capital. The company considers capital for operations as circulating. It includes cash, expenses, materials, inventory, and receivables.

The post The Role of Current Assets in Working Capital Management appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

Net working capital plays a vital role in evaluating a company’s financial well-being. It represents the difference between the company’s current assets, such as cash, and its current liabilities, like bills and salaries.

Maintaining positive net working capital empowers the company to navigate challenges and invest in growth after fulfilling immediate obligations. This metric serves as a safety net during downturns and enables the pursuit of expansion opportunities.

What Is Working Capital — Meaning And Definition

Working capital is a measure of how well a company manages its money in the short term. Positive working capital indicates a company’s ability to cover immediate bills and debts. Conversely, negative working capital suggests struggles in meeting short-term obligations

CFOs and financial managers must watch ‘trailing net working capital,’ – a crucial measuring stick for financial health. If it’s going down over the past 12 months, quarters, or years, it’s not a good sign. It reflects that the company might not have enough cash and could run into financial trouble.

Working capital isn’t just important for entrepreneurs – investors and managers care a lot about it too. For investors, it helps them figure out if a company can survive when things get tough financially. And for the big bosses, it helps them see ahead and spot any money problems that might pop up. To sum it all up, having enough working capital is crucial for a company. It’s like having spare money in case things get tricky.

How To Calculate Net Working Capital?

To calculate the net working capital, you just subtract the total current liabilities from the total current assets. This helps the business know if it has enough money to cover its short-term needs.

So, the working capital formula is:

Working capital = What you own (Current assets) – What you owe (Current liabilities)

Current assets: Money you’ll receive from customers and money currently in hand.

Current liabilities: Debts to be paid to suppliers and others.

Understanding The Building Blocks Of Working Capital

Working capital, a critical financial concept, consists of two essential components:

1. Current Assets:

These are the valuable resources a company possesses that can be quickly turned into cash within a year or a single business cycle. Consider items like cash in the bank, easily sellable investments such as stocks and bonds, money owed by others, and short-term prepaid expenses. Essentially, anything that holds the potential to transform into cash relatively swiftly falls under this category.

2. Current Liabilities:

In contrast, this pertains to the financial obligations a company is accountable for and the expenses it needs to settle within a year or a business cycle. It encompasses items like rent payments, utility bills, debts that must be repaid, and impending tax payments. Essentially, any financial responsibility that requires prompt action and payment belongs to this category.

The relationship between current assets and current liabilities is important. The goal is to ensure that the value of current assets surpasses the value of current liabilities. In simpler terms, the resources available should be sufficient to comfortably meet short-term financial obligations and operational needs.

To break it down further:

Current Assets: 

• Cash and cash equivalents
• Prepaid Expenses
• Accounts Receivable
• Marketable Securities
• Current Liabilities
• Other Liquid Assets

Current Liabilities: 

• Notes payable
• Accounts Payable
• Accrued Liabilities
• Current Portion of Long-Term Debt
• Unearned Revenues

Now, let’s look at some important terms:

1. Days Sales Outstanding (DSO): This is how long, on average, your customers take to pay their bills. A shorter DSO means customers pay you faster.

2. Days Payables Outstanding (DPO): This is how long, on average, you take to pay your suppliers. A longer DPO means you are holding onto your money for a bit longer.

3. Days Inventory Outstanding (DIO): This shows how quickly you sell your inventory or stock. If this number is smaller, it’s better – it means you are selling things faster.

4. Cash Conversion Cycle (CCC): This is the time it takes to turn your invested money in inventory back into cash. The formula for CCC is DIO + DSO – DPO.

A shorter CCC is great because it means you are changing inventory into cash faster. And there are three ways companies can do this:

• Ask customers to pay quicker (shorter DSO).
• Extend the time to pay suppliers (longer DPO).
• Reduce the time they hold onto inventory (shorter DIO).

The Importance Of Working Capital for Your Business

No matter how big or small your business is, working capital is super important. Here’s why it’s so good for your business:

1. Keeps Things Running Smoothly: Working capital helps things go smoothly in your business. It keeps the production moving without any hitches.
2. Boosts Money Flow: It’s like a boost for your money. Working capital makes sure you have enough cash to handle your day-to-day stuff.
3. Handles Fixed Assets Right: It’s not just about cash – it also helps you take care of durable assets you own, like machines and buildings.
4. Makes Your Business Look Good: Having good working capital makes your business look awesome. People think your business is doing well.
5. Gets You Discounts With working capital:  you can avail better discounts. Suppliers might give you a deal if they see you are doing well financially.
6. Makes Borrowing Easy: Need a working capital loan? Working capital makes it easier to get loans from banks. They see you are good at handling money.
7. Handles Surprises: Life can throw surprises, even for businesses. Working capital helps you tackle unexpected things without freaking out.

Types Of Working Capital:

Here’s a concise breakdown of types of working capital:

1. Gross Working Capital: This is the total of short-term assets, excluding liabilities.
2. Net Working Capital: It’s assets minus liabilities, indicating operational strength.
3. Permanent Working Capital: The minimum needed for ongoing functions.
4. Regular Working Capital: For everyday operations, like salaries and raw materials.
5. Reserve Margin Working Capital: Kept for unexpected events, part of permanent capital.
6. Variable Working Capital: Temporary funds, split into seasonal and special needs.
7. Seasonal Variable: Copes with spikes in expenses, like festive or high-demand times.
8. Special Variable: Reserved for specific purposes or unforeseen events.
9. Negative Working Capital: When liabilities exceed assets, causing a deficit.

Working Capital Ratio- Assessing Financial Health

Evaluating the financial health and efficiency of your company holds great significance. You can assess the financial health by examining the “working capital ratio.” The working capital ratio shows if a business can handle its bills.

So, it’s a measuring tool for how well the company can handle its short-term obligations. If the ratio is lower than 1, it’s like a warning sign that the company might not have enough working capital. But if it’s above 2, it suggests the company might not be using its extra money wisely. The best range is usually between 1.2 and 2.0. Another name for working capital is “net working capital.”

Ratio Analysis: Techniques To Analyse Working Capital

There are various methods to conduct a working capital analysis, but we will be focusing on ratio analysis under this segment:

Ratio Analysis:

This is a straightforward arithmetic display of the relationship between numerals. It measures the short-term liquidity of the firm a.k.a a simple way of seeing how well a company can turn its stuff into cash to cover its bills right away.

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory at Cost

FlexiLoans’ Working Capital Loans:

The purpose of designing these components is to fulfil the financing requirements of small and medium-sized enterprises (SMEs). Challenges faced by SMEs in obtaining small business loans due to limited credit history, collateral requirements, and lengthy approval processes are efficiently tackled through our online platform.

Benefits of Flexiloans Working Capital Loans:

1. Faster processing: You can acquire a working capital loan within three days with the necessary paperwork.
2. Keeping your ownership: These working capital loans offer fast and straightforward access to credit without requiring collateral.
3. Increases your cash flow: The loans let you operate regularly, regardless of cash shortages and fluctuations in sales.
4. Boost your credit score: If your company’s bank loan application doesn’t make it due to a low credit score, Flexiloans may help by reporting your loan activities to the Credit Bureau, potentially aiding in the enhancement of your credit score.

Visit our website to empower your business with FlexiLoans’ Working Capital Loans. 

FAQs:

Q. 1 What effect does the sale of fixed assets have on working capital?

Ans: Selling fixed assets can indeed affect working capital by boosting cash reserves. However, it’s crucial to know — if essential assets, such as production machinery are liquidated, it might lead to decreased operational efficiency, hindering the company’s ability to generate revenue.

Q. 2 How does acquiring fixed assets affect current assets?

Ans: Acquiring fixed assets may temporarily reduce current assets, particularly cash or short-term investments used for the purchase. However, if the acquired assets improve productivity or generate higher returns, it can positively influence long-term profitability and overall asset base. Careful assessment of the trade-off between current and fixed assets is essential.

Q. 3 What does a current ratio below 1 indicate?

Ans: A current ratio below 1 suggests that the business might struggle to meet expenses on time, posing a risk that investors consider.

Q. 4 What characterizes a working capital loan?

Ans: A working capital loan serves the purpose of addressing short-term business requirements like cash flow, inventory, and operating expenses. It offers swift and convenient funding access without requiring collateral, making it a suitable choice for MSMEs.

The post Working Capital Ratios: Assessing Financial Health and Efficiency appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

Working capital management is managing the capital of the entity to finance its day-to-day operational activities. Working capital is the difference between the current assets and the current liabilities of an entity. An asset or liability is considered current when it is payable or receivable within an operating cycle. So, we can understand that the definition of working capital management is how the entity optimises its receivables and payables in the best possible manner to yield the best financial results. There should be a good balance between how many current assets an entity has and the number of current liabilities it owes.

The primary need of working capital management strategy in any business is to pay short-term liabilities on their due dates promptly. Another significant objective of a well-functioning working capital management system is generating profits. A high amount of working capital means an entity needs to earn higher profits to ensure the required return on capital employed. Therefore, it is critical to determine a healthy balance between profitability and liquidity while deciding the appropriate level of working capital management. In the context of working capital management, one needs to be cautious of overtrading and overcapitalising.

Overtrading: Overtrading is a very low or negative working capital. Often, the working capital in such cases is not enough to match the business’s operational needs. Overtrading is extremely dangerous, and in adverse circumstances, it might result in the shutting down of businesses.

Overcapitalising: Having more working capital than what is required results from incorrect working capital management. Furthermore, it reduces profitability.

Importance of Working Capital Management

The significance of working capital management is tremendous, irrespective of the size of the business. Every entity requires a working capital management strategy or plan that is robust and well chalked out, considering various scenarios. Often, we see that profitable businesses are shut down, and it is because they were unable to manage to pay for their liabilities when they were due. Furthermore, a sound working capital management policy even results in higher profitability. Some reasons why management of working capital is essential are listed below.

Higher Return on Capital Employed

The working capital of an entity mustn’t be a lot more than what is required. Higher working capital means a higher portion of assets financed by the owner’s equity. Higher equity implies that higher profits are needed to achieve the required return on capital employed. When the working capital can be efficiently managed and the owner’s equity finances only the required portion of assets, it results in a higher return on capital.

Improvement in Solvency and Credit Profile

When a business pays off its dues on time while generating revenue, it ensures that its operating cycle is efficient. When the business ensures that its operating cycle is efficiently funded, it enhances its credit score. On the other hand, if the entity has low operational expenses but fails to repay its dues on time, it negatively pacts the business’s credit score.

Better Liquidity

A business with a high amount of working capital has higher liquidity and can pay off its dues even in times of crisis. It prevents businesses from shutting down and facing losses, called shut down costs, and enables surviving the crisis and restoring regular business operating levels.

Efficient Utilization of Fixed Assets

Having adequate working capital and efficient management of the same will help the business’s fixed assets to be utilised efficiently and effectively. Often, the business’s fixed assets remain idle due to the unavailability of components of working capital, such as raw materials, finished goods, and the shortage of funds to buy them. In such cases, even though there is no activity in the entity, it has to pay interests on borrowed funds and charge depreciation on the assets.

Expansion of Business

Any entity that wants to expand its business levels will need to have a healthy level of working capital to finance it. It is required to fund purchase orders and provide credit periods to more customers. Without an adequate and increasing level of working capital, it is challenging for any business to expand its business scale.

Increased Profitability

Policies such as credit period allowed to customers, cash discounts, and easy monthly installments (EMIs) all bear intrinsic or explicit interest costs. A balanced working capital management policy for all these schemes helps reduce interest costs and thus, results in higher levels of profits for the business.

Uninterrupted Trading and Production

Paying your vendors or creditors on time is one of the essentials of running your business smoothly. If they are not paid on time, they might put the delivery of raw materials on hold. These materials may be required for production or the supply of goods that are traded. It will result in a lower or even a complete halt in production or sales. Such activities harm the business reputation of any entity adversely.

Appreciation in Business Value

An entity that has efficient working capital management has a reputation in the market of being credit-worthy. It enhances the goodwill of the business, and consequently, its market value or share prices. A higher market value means higher wealth created for the business owners.

Edge Over Competitors

A business with an effective working capital management system can sell its products and services at lower prices, as it has lower overall costs.

Better Financing Terms

A business with a reputation for managing its working capital efficiently and paying off its dues on time has a higher credit score and worthiness. Due to this, it can obtain similar facilities from NBFCs, and creditors, such as business line of credit, with more favourable terms, compared to other players in the market.

Ready for Boons and Banes

A business with an excellent working capital management plan accounts for factors such as boons and banes, which are a part of every business cycle fluctuation. They are prepared and well-equipped to handle both deficient and high-demand levels, as they already plan for such contingencies.

How to Manage Working Capital?

Due to the above reasons, we can conclude that an effective working capital management plan brings both strategic and financial advantages due to the reasons listed above. Some of the things one can keep in mind while framing an excellent working capital management plan are mentioned below.

Analyzing Your Experience

Often, the mistakes and losses suffered in the past depict what to look out for and consider while planning for the future.

Being Proactive

It means to be alert to changes in the business environment and adapt yourself accordingly. Businesses should be able to anticipate changes in the working capital requirements to seasonal and economic cycle fluctuations, and inflate or shrink the level of working capital, accordingly.

Not Mixing Personal and Business Expenses

Mixing your personal and business records makes it more complicated to determine profits and determine your business’s appropriate working capital levels. When the working capital is not easily identifiable, it results in a lower credit score, lower creditworthiness, and less favourable credit terms. So, you should always maintain separate accounts for your business and personal transactions.

Making Payments on Time

Although this is one of the core essentials of running a business, it is often forgotten and lands even well-established entities in trouble. Paying your trade creditors and other short-term liabilities on time is highly critical to maintain liquidity, market reputation, vendors, and lender relationships, and as a result, keep your business running smoothly.

Proper Invoicing

It is as critical to invoice your debtors and collect payments from them on time as much as it is to pay off your liabilities. On-time collection of invoices ensures that the funds and cash resources of the business are not stretched, and there are enough liquid funds to maintain the business operations smoothly and effectively.

Choosing the Appropriate Source of Funding

There are so many ways to finance your working capital needs. Common sources are a small business loan, loan against POS, vendor financing, debtor factoring, loan against purchase orders, cash credit, and many others. Choose the source that suits your needs the best and is efficient for you. It is effortless to apply for and get it if your books are in order. Nowadays, a loan for women entrepreneurs in India and a business loan for women can help them boost their business.

Conclusion

So we see that working capital management meaning is nothing but simply how the working capital of a business is managed. The significance of working capital management in a business can never be undermined due to the reasons discussed. Working capital management objectives include keeping the business’s liquidity intact, enhancing operating efficiency, decreasing implicit and explicit interest costs, and increasing the overall profitability of the business.

FAQ’s

Q. 1 What are the 4 main components of working capital?

Ans: The four main components of working capital are cash, accounts receivable, inventory, and accounts payable. 

Q. 2 What is working capital management with examples?

Ans: Working capital management refers to the process of managing a company’s short-term assets and liabilities to ensure it has enough resources to meet immediate financial obligations. Examples include managing cash flow, inventory, accounts receivable, and accounts payable.

Q. 3 What are the three types of working capital management?

Ans The three types of working capital management is conservative, aggressive, and moderate. These refer to different approaches to managing the components of working capital.

The post Importance of Working Capital Management appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

Working Capital provides you with a clear idea of how the assets of the company are excessive or exceed the liabilities of the company. 

The Working Capital of a company is calculated in the following way:

Working Capital= Current Assets – Current Liabilities 

Why Working Capital is Important?

If you have good working capital available in your business, you can plan any growth strategies. Working Capital is important in all stages of business development and operations, starting from the purchase of raw materials to the production of goods, and finally to the sale of goods. 

All these business operations would require some financial investments and if at any stage those financial requirements are not fulfilled, the entire business operations are hampered.

To determine the health of your working capital you can use the following formula to derive a working capital ratio:

Current Assets/ Current Liabilities

If the Working Capital ratio is above 1.5, your regular working capital is healthy. However, if the Working Capital ratio is below 1, then it is implied that your business needs a working capital enhancement.

How to Increase Working Capital?

Having a streamlined working capital is not as easy as it seems to most of us. However, there are still some effective ways using which you can increase your working capital. The top ways how to improve your working capital are discussed as follows:

1. Shorter Operating Cycles

Operating Cycles include several stages between the purchase of the material till the receipt of money on the sale of finished goods. Having long operating cycles can require more money for proper channelization of the business and the receipt of payments will be delayed. 

Shorter Operating Cycles would decrease the expenses incurred between the stages and would also make the receipt of payments quicker.

2. No Overstocking

Overstocking of raw materials can adversely affect the working capital. At first, an amount more than required would be spent for purchasing the overstocked raw material and then extra money would be spent on the storage and maintenance of that raw material. Furthermore, if the overstocked raw materials get decayed or damaged, it would also hamper the smooth cash flow of the company.

3. No Unnecessary Expenses

Always monitor the business requirements and the situation of Working Capital before making any expenses. Unnecessary expenses can put holes in the pocket of the company by giving little to no return. Therefore, the business should prepare a budget and should strive to stick by it as strictly as possible.

4. Customer Credit Check

In most businesses, it is somewhat important to provide a credit facility to the customers to engage them with you. However, the credit limit and status should be checked timely. The payments often stuck in credit to customers can not get used in the business operations. This depletes the working capital and thus adversely affects the growth of the company.

5. Improved Collection of Invoices

The businesses should put a special emphasis on the timely collection of payment invoices and should also monitor the same. If customers are making delayed payments or not clearing their past dues, the business activity shall be put on hold with them till their past dues are not clear.

6. Try to Remain Debt Free

To improve your working capital, it is very important to remain as debt free as possible. Bad and prolonged debts deplete the working capital slowly. The interest payable keeps on increasing and their settlement becomes difficult with time. Thus, it is advised to either take small loans or settle the loans as early as possible to increase your working capital 

7. Bank Finance

Financial institutions undoubtedly help the business to grow and develop seamlessly. However, it would help if you looked for such financial institutions or banks which will get you a loan at a low rate of interest. This way cash flow will increase in your business and your liability for repaying the loan would decrease.

Also Read: Know About Working Capital Loan

Conclusion

Working Capital is the essence of any business. Healthy working capital would streamline the entire business operations of a company and ultimately help it to meet its financial obligations. The need to maintain good working capital is non-negotiable and thus, if you are an entrepreneur or a business entity, you should plan and prepare to increase the working capital.

The post How to Increase Working Capital and Liquidity of Your Company? appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

What Is Working Capital Requirement?

Working capital, which may also be referred to as net working capital (NWC), refers to a company’s ability to satisfy its current liabilities with its current assets. It is a piece of statistics used in finance to identify whether or not a company has adequate liquid assets to fulfil its obligations that are likely to be due fairly soon. When a company has current assets that are more than its requirements, the extra cash that the company has may be used in the organisation’s day-to-day business.

It is necessary to identify the appropriate category for each of the many assets and liabilities shown on a company’s balance sheet to gain insight into the overall health of a firm and its ability to repay its short-term obligations. This is accomplished by analysing the company’s balance sheet. This may be a challenging assignment.

Working Capital Components

Before we learn how to calculate working capital requirement for a firm, consider the following factors that influence working capital.

Current assets

The term, “current assets”, refers to any liquid asset that may be turned into cash during a year. Among them are:

• Money in the bank and consumer cheques that have not yet been deposited
• Prepaid insurance premiums and other expenditures
• An inventory of completed items, raw materials and work-in-progress products
• Accounts receivable without regard for allowances for accounts that are unlikely to be paid
• Payments paid in advance for future purchases
• The company’s short-term investments that it hopes to sell in a year
• Money owed to suppliers or customers that will be paid back during a year, including notes receivable
• Insurance claims, employee cash advances, and income tax returns are examples of receivables.
• Investments in money market funds and other securities

Current liabilities

Your current liabilities include any debts that are due in the year, such as:

• Long-term obligations due during a year
• Amounts owed to creditors
• Taxes owed
• Wages for employees

Business loan interest rate

• Loan principle that must be paid back in a year
• Expenses incurred
• Payments in advance for products and services that have not yet been provided

Types of Working Capital Formulas

You may choose one of the numerous models depending on how precise you or your analyst wants your working capital calculation to be.

The most comprehensive calculation takes into consideration all accounts:

• Some firms choose a more specific calculation for simplicity:

Working Capital = Current Assets (minus cash) – Current Liabilities (minus debt)

• Some people even employ a formula with just three accounts:

Working Capital = Accounts Receivable + Inventory – Accounts Payable

Formula to Calculate the Working Capital

The working capital formula calculates the amount of short-term liquid assets available after short-term obligations are paid off. It is an assessment of the short-term liquidity of a business and is helpful for the management of cash flow, financial analysis and financial modelling.

Step 1: Determine all current assets (CA).

Step 2: Determine all current liabilities (CL).

Step 3: Deduct the CA from the CL (CA – CL).

How to calculate working capital

Below is an example to make you understand how to calculate working capital:

Working capital = Current assets – Current liabilities

Working capital = Rs. 221, 500 – Rs. 60,000 = Rs. 161,500 

So, your company’s working capital is Rs. 161,500.

Importance of Using the Working Capital Formula

The method of calculating working capital provides you with insight into your cash flow position, ensuring that your company has sufficient funds available to support the ongoing success of its operations. This includes fulfilling the financial commitments you have on a day-to-day basis. However, it is also essential for fostering expansion and making your company more resistant to fluctuations in revenue and profits. If you have access to operating cash, you are prepared to deal with any unanticipated expenses.

At the same time, having enough operating cash allows you to rapidly react to new possibilities and assists your company in withstanding any challenges that may arise. At some point or another, the majority of enterprises will experience periods of downtime.

Positive or Negative Working Capital

When a business has positive working capital, it has adequate cash left to pay off short-term loans and support the development of the company’s operations using its resources. This is a promising sign about the organisation’s financial success in the immediate run. Working capital shortages might cause a company to seek outside help from investment bankers or take out a business loan from a financial institution.

When a company’s working capital balance is in the red, its assets are not being used to their maximum potential, and the company faces the danger of a liquidity crisis. Regardless of the amount of money that has been put into purchasing fixed assets, if a company has commitments that are soon to be due, the company will run into problems on both financial and operational fronts. This might lead to the company taking out additional working capital loans, making late payments to its creditors and suppliers, and eventually having a worse corporate credit rating.

How to Deal out Your Working Capital Requirement

A significant number of companies have to pay their bills before they can collect any profits from their sales. The period is known as the working capital cycle or the operational cycle. It refers to when your company pays money out (for example, to suppliers) and when it gets money back (for example, from sales). The amount of money necessary to pay the costs associated with this delay is your company’s working capital requirement.

The working capital cycle method of calculation is, Inventory Days + Receivable Days – Payable Days = Working Capital Cycle in Days.

The post Step by step instructions to Calculate the Working Capital Requirement for Your Business appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

A business loan is a type of loan which is specifically intended for business purposes. Similar to other types of loans, this loan also involves the creation of debt, which is repaid along with interest. Several business loans include asset-based financing, microloans, business cash advances, and cash flow loans. One of the top business lenders and a non-banking financial company, FlexiLoans offers business loans online packed with benefits. Hundreds of businesses have used Flexiloan’s financing solutions because of its safety and security, transparency, quick funding, and, most importantly, collateral-free. An online lending platform that started with the motive to solve the problems that small and medium enterprises (SMEs) face in accessing flexible, quick, and adequate funds for growing their businesses. Known for lending instant business loans, FlexiLoan’s vision is to give ‘loans at a click’.

Role of small and medium enterprises (SMEs) in our country and how loan providers can help them expand

SMEs form the backbone of most economies, particularly the developing ones like the Indian economy. They employ around 40% of India’s workforce, which on an average form 80 million people are given an opportunity for livelihood and employment via unskilled jobs. 45% of India’s manufacturing output and 40% of India’s total exports are contributed by SMEs. At 48 million, India has the second-largest number of SMEs globally, China being the first one with around 50 million SMEs. 31.7% of SMEs are engaged in manufacturing around 6000 products, while the remaining 68.2% deliver various services. According to some estimates, 600 million jobs will be required by 2030 to absorb the heightening global workforce, which makes SME development a high priority for many governments across the globe. If provided with the right support, this sector can expand industrial growth throughout the country. The international finance corporation (IFC) estimated 40% of formal micro, small and medium enterprises have unmet financial requirements of $5.2 trillion every year. The major challenge faced by Indian SMEs lies in their financing problems. Around 80% of loan proposals from SMEs are disapproved by financial institutions on account of inadequate collaterals or financial history. With the fast, dynamic, and ever-present digital adoption in India & increased paths to leverage data analytics, FlexiLoans stands on the edge of banking transformation in the country, which helps in serving the large unserved and untapped demand intelligently. A non-banking financial company (NBFC) registered with RBI. We aim at meeting the financial requirements of SMEs and provide business loans for SMEs who do not have credit history and hence cannot avail of loans. It also offers small businesses a better experience and gives borrowers a convenient, fast, and straightforward online application that improves the time consuming and frustrating loan applications process

Why should you consider FlexiLoans for your business loan?

FlexiLoans provide quick business loans without collateral to small and medium enterprises in India for their daily operations and working capital requirements and provide unsecured business loans starting at 1% per month. We wish to make SMEs & Individuals’ social & alternative scoring of SMEs & Individuals a significant opportunity for the economy that will far outplace the limited insights that the financial bureau provides. We believe our technology-powered online marketplace is the best model to meet the financial requirements of SME’s who do not have credit history & hence cannot avail of loans from traditional banking channels. Although there are many private finance companies around the globe, Here are few noteworthy reasons why you should choose FlexiLoans for your financial business requirements:

Collateral free:

FlexiLoans aims to provide tension-free loans to SMEs and small business owners as we offer business loans without collateral.

Minimum documentation:

An online business loan provider, FlexiLoans started with a motive to solve the problems faced by SMEs in accessing quick, flexible, and adequate funds for growing their business, it provides quick business loans to MSMEs with minimum documentation and easy process.

Safe and secure:

To safeguard and secure your data, we follow only RBI mandated guidelines and policies, so you do not have to worry about the credibility from where you are raising funds.

Transparent:

Our vision is to provide financial access at a click; consumers and small businesses can borrow through us to get loans customised to their needs at a fast pace and transparent finance charges so that there are no surprises later.

Offers multiple types of business loans:

FlexiLoans’ products help you with multiple types of business loans:

• Term loans
• Vendor financing
• Loan Against POS
• Line of credit

Loans starting at 1% p.m:

In a survey conducted with around 15000 listed and unlisted companies, from diverse ranges such as textile, agriculture, IT, a common trend showed that SMEs exposure to bank credit was low due to high-interest rates charged. FlexiLoans provide you loans starting with 1% per month, up to 1 crore.

Fast process:

You can apply for a business loan to get quick approval of your business loan in just 3 easy steps. Check your eligibility with few simple steps and get your loan approved:

• Download our app.
• Click photos of some key documents
• Connect to your bank account
• That’s it! After following the above three steps, get your loan approved within 48 hours.

High loan amount:

FlexiLoans allows you to get a business loan up to 1 crore with an interest rate as low as 1%.

Hassle-free and paperless process:

We understand that predicting monetary requirements in advance is a difficult process. You may need funds urgently when the need arises. You can get your online application for a business loan approved within hours and get the money directly credited to your account without any hassle. to get quick business loans approved instantly.

Loans serviced in 1000+ cities:

An RBI registered NBFC which is trusted by merchants of 100+ partners, we have 4,00,000+ happy customers in 1000+ cities across India.

Instant loan approval, a high loan amount without any collateral, multiple types of business loans with safety and transparency makes business loans from FlexiLoans better than the rest.

FAQs on getting loan disbursal from FlexiLoans – a top business loan lender

How do I apply for a business loan?

You can apply for a business loan by following the 3 easy steps:

1. Complete application: apply for a loan from anywhere in India by answering some questions on the website or the app, which typically takes 5 minutes. These details will be used to assess the eligibility for the business loan.

2. Upload documents: upload the following documents online:

• Personal KYC- PAN card
• Residential address proof: rent agreement, driving license, voter’s ID, ration card, aadhar card, passport
• Banking: last 6 months bank current statement
• Business KYC (anyone): GST registration certificate, shops and establishment certificate

3. Credit in your bank account: the amount will be then disbursed in your bank account, and our experts will help you with repayment details.

• On what basis will you disburse the loan amount?

Once you have applied for a business loan by following the above three steps, We will review your business performance to determine the amount you can access and compute the interest rate applicable. Our loan officers will help you understand the offer and make the best decision.

• What is the maximum amount that I can borrow for my working capital loan?

The maximum amount you can borrow for a working capital loan starts from 50,000 and up to 1 crore for a tenure of 3 to 24 months.

• What are the multiple types of business loans offered by FlexiLoans?

The types of business loans offered by us are:

• Merchant cash advance
• Working capital loans
• Vendor financing
• Line of credit

• Will I have to put any collateral as security?

Absolutely not! You can get a business loan without collateral. There is no security or collateral required to get a loan for your business.

• What will be the repayment tenure for a working capital loan?

The repayment frequency for a working capital loan is flexible. You can select an option that best suits your needs.

The post 10 reasons why FlexiLoans is a top business loan lender appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

What is Cash Flow Management in Business?

Cash Flow Solutions for Small Business refer to tracking inflow and outflow of funds in the business. The system helps make decisions about money you need to pay for supplier’s or lender’s debts, salaries, etc.

Your business will be better positioned to predict the amount of money available for business requirements in the future and tackle financial problems with the company.

Cash Flow Techniques keep track of all receivables and payables to maintain a balance in your business operations.

Categories of Cash Flow in Businesses

There are broadly two categories of Cash Flow for Small Businesses: Positive cash flow and Negative cash flow.

Positive cash flow

Positive cash flow means your funds through sales, services, and other business receivables are more than spending on employee salaries, office expenses, vendor’s payments, etc. It means your business is in good health to function smoothly.

Negative cash flow

As the name suggests, negative cash flow is the opposite of positive cash flow. Small businesses experience more expenses than receivables. To survive and grow in business, apply cash flow techniques. Use AI and ML-enabled latest software for managing cash flow efficiently.

Types of Activities related to Small Business Cash Flow Management

Operational Activities: Monetary activities during business operation related to the net income

Investment Activities: Monetary activities related to non-current assets

Financial Activities: Monetary transactions related to business owner’s equity and non-current liabilities

We have explained in brief about cash flow management, types, and activities for small businesses. In the next section, we will mention a couple of significant reasons for the early-stage failure of small businesses and startups, followed by steps that improve the flow of business ideas.

Challenges and Reasons to Fail in the Initial years for Small Businesses

Early-Stage Finance Crunch

Working capital and seed fund are essential to launch & operate a business. A disconnect between your revenue and expenses led to business loss and failure. You can consult leading NBFCs like FlexiLoans for online business loans and manage the financial challenge during the initial years.

Apply for business loans at reputed NBFC and financial institutions to avoid market-related risks and security of the fund. Their interest rates for business loans in India are competitive. These lending bodies decide interest rates according to the guidelines of the Reserve Bank of India.

Pricing too Low

Small businesses tend to keep prices of products and services lower than the competition to attract new customers. This led to negative Cash Flow for Small Businesses and a severe challenge in managing the day-to-day business operations.

Cash Flow Solutions for Small Businesses to handle the financial problem

• Make a realistic business plan and budget.
• Arrange capital funding based on a business strategy including expected income and expenditures, especially during the breakeven period

Inadequate Cash Flow Management

Small business owners manage everything on their own, resulting in mismanagement in the cash flow, operations, etc. You need experienced and professional managers to manage the business, even in its early years. The best source to procure talents in the early years is your network and social circle.

A sound small business plan must include the following;

• A clear description of the entity and plan to arrange capital
• SWOT Analysis (Strengths, Weakness, Opportunities, and Threat)
• Plan about future management, operation, and HR requirements
• Competitor Analysis and Market research

A proper business plan gives strength to the business and optimises cash flow management efforts.

Lack of a Dedicated Marketing Plan

Marketing, both traditional and digital, is a crucial part of any business. You cannot ignore marketing at any stage of the company because ‘jo dikhta hai wahi bikta hai’. Make a separate budget for the marketing and use a balanced approach of ATL, BTL, and TTL marketing methods to promote business products and services.

These are vital points to consider for small businesses and startups. An effective and efficient Cash Flow Management depends upon a business plan, marketing plan, and financial backup. After common mistakes, let’s go through how to increase business cash flow.

Steps to Improve Cash Flow Management for Small Businesses

Identify Problems and Challenges

Start with making a list of questions such as:

• What if that deep pocket client converts?
• How to manage long-term projects?
• How to deal with dues?
• How to arrange funds for expansion?

Cash Flow Techniques should involve a risk analysis approach and answer these crucial questions about operations to prepare in advance.

Do not Mix Personal and Business Transactions

Startups and small businesses start mostly with family members, networks, etc. Owners generally invest from personal savings and use a personal account for business purposes. You should maintain separate accounts for personal and business, do not mix them.

A separate business account helps in getting a credit card for payments. You can track payables and receivables monthly, quarterly, and annually. This type of information will help in efficient cash flow solutions for small businesses.

Businesses can apply for a line of credit loan offered by leading NBFCs and banks. You can get details of the line of credit loan in your business account statement.

Managing Cash Flow with Inventory Management

Inventory management is crucial to maintain a healthy cash flow. Keep track of highest selling and least selling goods & services. Remove stuff that is consuming too much space and providing very little revenue.

Attain optimum Cashflow Management by eliminating unproductive inventory and new working capital.

Small businesses can avail benefits of working capital loans, MSME business loans, and the Government of India initiated Mudra loans. Apply for these schemes and loans to fulfill the financial requirements of the business.

Buffer Money as a Cash Flow Management

Buffer Money is essential throughout the business life cycle, whether it breakeven period, operational purposes, day-to-day expenses, etc. Traditionally three-month buffer money was considered standard for a healthy cash flow business.

Businesses can keep a buffer in terms of personal savings, overdrafts, properties, investments, and so on.

Control Inflow-Outflow of Funds

Startups and Small Businesses can adopt the following measures for optimised Cash Flow Management:

• Make invoices on time and do a professional follow-up for timely payments.
• Take office property on lease, optimum application of utilities, etc. Save on monthly billing.
• Use staff tracking software for salary, performance evaluation, feedback, and many more
• Research the market and procure equipment, office furniture, computers/laptops at the best rate. Book a bulk order on e-commerce platforms for the best deals. You can also use their Mega Sale offers.

Brainstorm with your core team and reduce any overhead expenses for small business cash flow management.

Minimise Gap between Receivable and Payables

Receivables and payables are a continuous process that runs the business. There should be clarity with both for smooth cash flow management.

An example here will make it easy to understand. Suppose you are paying vendors in 30 days and allow customers 45 days for payment. This system will create a gap in receivables and payables.

Apply best cash flow techniques and minimise the gap for sufficient funds at the time of payments and the buffer money.

Get Rid of Malfunctioning Equipment

Malfunctioning equipment raises the cost of production and operation. These over-used machines need regular repairs and maintenance.

Replace them with new and efficient types of machinery. Cash Flow Management means optimum utilisation of available resources to reduce unnecessary fund outflow. Replace malfunctioning types of machinery and save technological transformation.

Technological Improvements

Technology brings convenience and smartness to the business. Use the Internet of Things-enabled sensors, trackers, wearables, etc. and improve the overall business performance.

Technology brings efficiency, saves on cost, boosts productivity, and brings transparency.

Multiple payment options

Multiple payment options will enhance receivables. People feel comfortable when they have several modes of payment. Expand the payment options such as Debit and Credit cards, E-Wallets, Internet Banking, Cash, Bitcoin, etc.

Professional Customer Support

Small businesses often overlook customer support as an essential ingredient for improved cash flow management. Keep all channels open for communication such as emails, phone, in-person, website, etc.

There should be a personalized touch in your communication for pre-and post-sales to boost customer experience and eventually positive cash flow.

Concluding Thoughts

Cash Flow Management provides a balance between receivables and payables. Refer to the passage, improve cash flow in the business, remove bottlenecks and have a happy & prosperous business ahead.

The post Steps To Improve Cash Flow Management for Small Business appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

The garment business is one of the most flourishing businesses in the world. Clothes are not just a necessity anymore. They are a status symbol. People want to wear clothes that showcase their personality. The textiles and apparel industry contributes 5% to India’s GDP. In a developing country like India, the potential of a readymade garment business is limitless. If you are looking for ideas on ‘how to start a garment business’, you have come to the right place. Here is a complete guide on how to start a readymade clothes business.

Readymade Garments Business Plan

A business plan contains your vision, objectives, and the ways to achieve these goals. It is a blueprint of the business that considers marketing, operations, and finances. This document will also help you get a loan from the bank and get investors on board. Before you start working on your business plan, you need to research a lot. First, ask yourself the following questions:

• What sort of garments would be the most feasible and profitable?
• How much capital can you invest in the business?
• How much capital can you raise from the bank or other sources?
• If you don’t have collateral, how do you get a business loan without collateral?
• How will you market your products?
• When do you expect to start generating profits?

The questions mentioned above are just some examples to get you started. The basic idea is that you need a clear plan on what you intend to do and how you should go about it.

Tips for a Garments Business

• Do your research – Before you start any business, you need to do the groundwork. You should talk to the popular garment manufacturers as well as retailers when starting. Figuring out what the local market likes, what does not sell, what is in demand but is not available, etc., is crucial. You can also check if there are products that began trending recently and have a great future in the market. The early-movers advantage can help you generate profits quickly.
• Choose your business model – First, you can choose whether you want to be a manufacturer or a retailer. If you want to manufacture, there are many ways to go about it:
  • Custom manufacturing: You will have to create designs, a brand, and manufacture new products. Everything has to be done from scratch. This way of manufacturing has risks, but the rewards are high.
  • On-Demand: In this type of manufacturing, you can take orders from businesses, franchises, etc., and the buyer will tell you how much and what to make. This one carries significantly less risk. However, it is tough to get orders when you are starting.
  • Outsource Manufacturing: In this type of manufacturing, you can outsource all the work to other manufacturers, slap on your brand label, and sell it on the market.

If you want to go the retail way, there are two ways to do it. You can take a franchise or sell clothes of various brands by purchasing them from wholesalers.

• Get the requisite capital –

The first and foremost thing you need when starting a business is capital. So figure out how much you would need to start your garment business. Next, know how much you can invest in the industry. Do not go all out and invest all your money in the business.

Try to get small business loans from banks or NBFCs such as flex loans by presenting your business plan. Banks would need collateral to finance your venture. There are great NBFCs such as FlexiLoans that offer collateral-free business loans. Moreover, you can get an online business loan from the comfort of your home. The interest rate for business loans in India is relatively moderate as the Government wants to incentivize businesses. Lastly, Micro, Small, and Medium Enterprises (MSMEs) can get MSME business loans at cheap rates.

• Start Small

You do not need to go all guns blazing. At the outset, you can research the local market and find out the most popular items. If you are opening a franchise, you can keep a limited stock of the popular items. Once you establish your business, you can then gradually expand your business. The same goes for a manufacturing enterprise. Start small to go big. Apply for business loans online to start your business.

• Pick a good location for a readymade garments shop

If you are opening a readymade garments shop, location is everything. Customers will not go out of their way to come to your shop unless you already have a strong presence in the market. The best thing is to start a shop in a popular location where there are other garments shops. Customers love choices, and they shop in areas where they have lots of shops to choose from. One more aspect of this is to rent or lease a shop that is not disputed. You do not want to get entangled in legal disputes when starting.

• Invest in infrastructure

The facade and interior of your shop can make a big difference. The facade should be such that people would want to go in after seeing it. Not only that, the interior of a garments shop is of the essence. The lighting and the mirrors in the shop should be placed in ways that show people’s flattering side. They would then associate the feeling of looking good with your shop and visit again.

• Fulfil legal obligations

At the outset, you will need to fulfil any legal obligations such as getting a GST number, rent/lease agreement for the shop, getting the requisite permissions from the municipal corporation, etc. Ensure that you do not skip these formalities, as this can result in hefty fines or even shop closure.

• Focus on marketing

There’s no point in establishing a great store and excellent products if people do not know about them. When you are starting, you need to invest in social media marketing as well as offline marketing. Moreover, have incentives for customers such as Buy One Get One or Flat 50% Off, etc. Run paid promotions on social media. You can even target people based on their age, location, shopping preferences, etc.

Social media marketing can get you the highest return on investment as you can market to your target audience directly. If you want to start your brand, you should have a website as well. Build your website well, and you can generate sales from all over India. People look for fresh designs as they are bored of generic designs from known brands. After establishing your presence, you can also build an app and sell your creations. These days, you do not need to shell out big bucks to have a good app. In the internet age, all you need is good products, fresh designs, and a great online presence to generate substantial revenue.

• Create innovative designs

There are hundreds of thousands of garment manufacturing businesses in India. You need to provide quality and fresh designs to stand out, especially if you intend to attract the youth. To do that, you will need to hire someone who can create good designs on Photoshop or other platforms. You can also go old school by hiring local artisans and get designs from them. Today, old-school designs are making a comeback as people want to embrace traditional clothing.

How to Start a Garment Shop in India – Readymade Garments Franchise in India

There are low-cost clothing franchises in India, such as FabIndia, Raymond, Kaira, etc. With high-cost franchises, there are many requirements such as the minimum number of staff, outlets in posh areas, capital requirements, etc. You can go for low-cost options if you have limited capital. Apply for a business loan if you want to extend your capital.

Garment Business in India – Profit

Garment business profits will be generated gradually. Now that we understand how to start your garment business, we can discuss profits. When you start a business, it will take you considerable time to start generating profits. The readymade garment business is the same. You need to be patient. Do good work and establish your presence in the market, and you will start generating handsome profits gradually.

Conclusion

The readymade garment business is a promising venture to pursue in India. You can generate substantial profits by researching well and working smartly. Focus on key aspects such as getting the requisite capital, choosing the right business idea, establishing your business with stellar marketing, etc. To get capital, you can approach banks or NBFCs for MSME loans for new businesses.

The readymade garments business is just like any other business at its core. You have to be patient and follow the tips shared in this article to succeed. There’s a high chance that you will start earning well from your garment business. What are you waiting for? Get started on your dream venture right away.

The post How to Start a Readymade Garment Business in India appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

So, now we would want to educate you on the detailed steps involved in applying for a term loan. This guide will allow you to take a loan and keep your business in action under any circumstances.

WHAT IS A WORKING CAPITAL LOAN

The loan amount given to maintain an adequate amount to keep the business running is called the working capital loan. Working capital is required to pay bills, credit salary to employees, maintain the office, purchase inventory, pay rents, file tax, etc.

WHY WORKING CAPITAL LOAN IS REQUIRED

There are situations that you have expected will demand a working capital loan. Do not worry about only negative times where you will be in short of funds. There are good times as well when you need funds. For example, when you got a new project, and you are short of resources, then you need money to arrange for supplies and accept business. This loan taken can be repaid quickly with the profit you will generate from the business. Is that not a good reason to get a loan today and earn big?

Secured working capital business loan

Here you can get a loan by pledging your asset. It could be movable or immovable. The lender will have security in offering you a loan. You can ask for the loan amount based on the asset you pledge as security.

Unsecured working capital business loan

In case you don’t have an asset to pledge, then how will you seek a loan. That is when an unsecured loan comes into the picture. This is called a collateral-free loan, and there is no demand for any security. The loan amount is decided based on the risk of your business, loan amount, loan tenure, etc.

WHAT ARE THE TYPES OF WORKING CAPITAL LOANS TO CHOOSE FROM?

• Secured working capital business loan
  
  Here you can get a loan by pledging your asset. It could be movable or immovable. The lender will have security in offering you a loan. You can ask for the loan amount based on the asset you pledge as security.
  
  
• Unsecured working capital business loan
  
  In case you don’t have an asset to pledge, then how will you seek a loan. That is when an unsecured loan comes into the picture. This is called a collateral-free loan, and there is no demand for any security. The loan amount is decided based on the risk of your business, loan amount, loan tenure, etc.
  
  
• Working capital demand loan
  
  A special kind of a loan, which can be obtained like a credit card, is called a working capital loan on demand. This is a line of credit loan in which up to some amount of money is credited in your account, and you can use it at the time of need. You can pay interest only for that amount utilized.

WHO IS ELIGIBLE TO APPLY FOR A WORKING CAPITAL LOAN

• With a minimum business vintage of 1 year, you are eligible to apply for a working capital loan
• Your monthly turn over must be minimum of INR 2,00,000
• You must maintain a decent credit score. Yes, a credit score above 750 stands a chance for an unsecured working capital loan
• You must be an adult above age 21 and not more than 60.
• Regular payment of tax is mandatory, and minimum one-year papers will be verified

HOW TO APPLY AND GET THE APPLICATION PROCESSED

At FlexiLoans, the process is simple. You need to access our site and apply for the working capital loan. Fill your details and upload essential documents like personal KYC, GST certificate, bank statement, business KYC, etc. We will immediately contact you, and we will process your loan status in no longer than 48 hours.

FEATURES OF WORKING CAPITAL LOAN FROM FLEXILOANS

• EMI based loans – The loan can be repaid in installment, and you need not worry about loan burden. Yes, get a loan today but repay slowly so that it does not hamper your business plan.
• Tenure – Take time up to 2 years to repay the loan amount. It is a decent time-frame, and you can use the fund to generate profit from your business.
• Interest rate – The rates are not fixed and rigid. It is decided based on the business case. So do not feel daunted before talking to us.
• Repayment option – You can take time to repay and the time is flexible. Choose a fixed or floating repayment pattern. In a fixed option, you can pay on a stipulated date and for flexible pay as and when you have a fund with you.
• Collateral-free – Don’t bother to submit any guarantee.
• Online – We process online, and you can apply from anywhere in India to get working capital loans from us.

WHAT SHOULD YOU ASK BEFORE APPLYING FOR A WORKING CAPITAL LOAN

Having explained all the features, eligibility, and process to apply for a working capital loan, in this section, let us explain to you to ascertain a few things before applying for a loan. What must you ask or check before you apply for a loan? Here are some of the most commonly asked questions:

• Do you know why you want money? Even though the loan lender does not really trouble you for why you need money. But, it is a good practice for you to self-analyze the need for the loan. This will help you to plan for the funding and repaying capacity.
• Understand if you have explored all options before applying for a loan. Check if you have identified the right source to take money from.
• Have you planned the right way to spend your money? Do you know how much returns you will get and when? This idea will give you confidence in repaying the loan.
• Will this money provide you a cushion? Are you over boarding or underestimating the situation?
• Did you know the interest rate, fees, and other charges? Is everything affordable?

With these brainstorming questions and finding answers to them, you will be sure of getting a loan at the right place. Further, you can use them to your best and repay them on-time.

FINAL SUMMARY

Working capital is the fundamental need for smoothly executing business. Every business must have a good cash flow to manage any emergency. Having said that, it is not always possible to have surplus funds, and then you can go for a working capital business loan. You can enjoy all the benefits of a loan when you approach us. Just check the eligibility criteria and reach us to take your business to the next level.

The post A GUIDE TO WORKING CAPITAL LOANS FOR YOUR BUSINESS appeared first on FlexiLoans Finance, Business Loan Blogs, Tips & Guide.

To understand working capital better, let us first try to comprehend the phrases working capital shortfall and short-term borrowings. In their financial statements, businesses describe current assets and current liabilities projected to be recognized or resolved during the regular operating cycle, i.e., 12 months after the balance sheet date. That’s the origin of the notion of working capital.

What is Working Capital?

Working capital is the total worth of a company’s assets that may be constantly cycled to fund ongoing operations. Working capital also aids in determining an institution’s liquidity status or how quickly assets transform into cash.

Suppose the present asset value exceeds the current liabilities. In that case, the firm does indeed have a “positive working capital,” and if the opposite is true, the firm is said to have a “negative working capital.” A firm’s positive working capital guarantees adequate money to cover its operational costs and short-term small business loans.

Types of Working Capital

1. Permanent Working Capital

This is another term for fixed working capital. The term “permanent working capital” refers to the bare minimum current assets necessary to keep a firm solvent. The size of fixed working capital is proportional to the magnitude and growth of the business. Most of the time, long-term financial options are used to get fixed working capital.

2. Variable Working Capital

It is simply the amount involved in a company enterprise for a brief period. Additionally, it may be thought of as increased working capital utilized to adjust for production and sales operations variations. In India, variable working capital is sometimes referred to as temporary working capital.

3. Reserve Margin Working Capital

It is additional money necessary to cover unknown future risks. It is also referred to as “cushion working capital” since it assists in mitigating unjustified business-related risks, allowing businesses to continue operating during a crisis.

4. Seasonal Variable Working Capital

A firm needs additional working capital throughout the peak seasons to fulfill client demand. Business owners frequently seek further financial aid in these instances. In India, the working capital arranged in this manner is referred to as seasonal working capital.

6. Regular Working Capital

Permanent working capital is typically necessary for the usual course of business to guarantee the working capital cycle runs smoothly. The term “regular working capital” refers to the smallest amount a firm requires to conduct its daily activities.

7. Special Variable Working Capital

This form of working capital is best defined as the additional working capital required by a firm to address specific conditions. The unique variable working capital can be used for various purposes, like funding the introduction of new goods, financing marketing campaigns, and disaster management.

8. Gross Working Capital

The term “gross working capital” refers to the total value of a business’s current assets (assets convertible to cash within a year or less). Cash, accounts receivable, inventories, short-term investments, and marketable securities all constitute gross working capital.

9. Net Working Capital

It is, without a doubt, a critical source of operating capital. The amount by which a firm’s total assets exceed its current obligations is referred to as net working capital. In simple terms, this is the differential between the entire current assets and current liabilities of a corporation.

Working Capital Life Cycle

The working capital life cycle refers to the time required for a business to convert its total net working capital to cash. Additionally, it reflects an organization’s skill and willingness to handle its short-term liquidity. In other words, it is the period between the acquisition of raw materials and the generation of money through the sale of produced items.

A business can attempt to reduce the length of its working capital cycle in the following ways:

• Reduced credit duration granted to clients, resulting in a shorter average collection duration. Additionally, providing a cash discount might help enhance the debtor’s turnover percentage or average collection time frame, among other things.
• The business might take initiatives to enhance or streamline its production processes and concentrate on alternative sales methods. This will result in a reduction in the time required to convert inventory to sales. The faster earlier stock is cleared, the more favorable the working capital cycle will be.
• Additionally, the working capital cycle can be decreased by improved negotiation with suppliers of raw materials and items necessary for manufacturing to extend the credit duration.

The formula is:

Working capital life cycle = Sum of inventory days + Receivable days – Payable days

A good strategy to abbreviate this life cycle is to improve the business venture’s competency and liquidity in the short term. Generally, this is accomplished by selling merchandise, creating revenue through sales, and progressively repaying current debts.

Components of Working Capital

The major components of the working capital cycle include:

– Inventory

It is a key element of a business’s current assets and, as such, is helpful for successful working capital management. Inventory or stock would consist of raw materials, semi-finished items, and completed things in an ideal world.

– Accounts Receivable

They are also known as trade receivables, which refer to the unpaid invoices that a business incurs when it sells and delivers things on credit.

– Accounts Payable

They are a significant component of current liabilities. Accounts payable, in general, refer to the balance due on credit purchases made by a business. Experts advise organizations to use comprehensive management techniques to ensure on-time payments and a healthy cash flow.

– Cash Equivalents

Without question, one of the most significant components of working capital is current assets since they enable the continuation and optimization of operational activities. One must keep in mind that cash also contains readily convertible liquid securities. Cash management is critical for optimizing the operating cycle, reducing unnecessary spending, and increasing profitability.

Factors Affecting Working Capital

It is vital to maintain a specific level of liquid cash and assets that are readily convertible to liquid cash. Bear in mind that an organization might run out of cash even though it has an adequate number of current assets. This is because it is still unable to convert its assets to cash.

• Working capital is often influenced by the sector to which it belongs, its rivals, its connection with suppliers, and its association with clients.
• If there is still a no-credit policy, borrowing will be prohibited. This enables the business to run efficiently.
• Only if consumers pay on time, the business will have a minor issue sustaining its working capital.

What Are the Benefits of Working Capital to Businesses?

Working capital is a crucial element of all businesses, regardless of their size or scope of operation. Several advantages of working capital are:

• It contributes to the smooth operation of the manufacturing process
• It contributes to the expansion of liquidity
• It assures the most efficient use of fixed assets
• It facilitates the acquisition of financial assistance, such as a loan, and enables more effective management of contingencies.

Working Capital Finance

Maintaining a business’s operations and many services is no simple feat since it requires a steady flow of revenue. At times, it becomes challenging to create sufficient cash flow to continue operations owing to several issues.

In such cases, you may apply for a working capital loan, alternatively referred to as a business loan in India.

Working Capital Loans of Various Types

1. Short-term loans

The short-term business loan has a specified repayment period and interest rate. This is a revolving loan. However, depending on your credit history and relationship with the lender, you can acquire this business loan without collateral.

2. Credit line

This is the most flexible working capital financing. The lender approves a specific amount of money for the borrower to utilize. The borrower must exercise caution not to exceed the monetary limit allowed. Furthermore, the borrower is charged interest on the amount withdrawn, not on the amount granted. This motivates the borrower to deposit the borrowed funds to avoid paying interest.

3. Trade Credit

Potential or current suppliers provide this working capital credit. When you place a large order with a supplier, they may offer you trade credit. However, this loan is only granted after a comprehensive evaluation of your creditworthiness, earnings, and credit history by the provider.

Working capital loans are typically quick and simple to get, allowing business owners to manage immediate financial demands quickly. Lending institutions like FlexiLoans can link working capital loan payments to the firm’s cash flows, avoiding additional strain on the firm during times of low activity.

Final Words

Working Capital is the amount of money a business has on hand to cover daily operating expenses. This financial statistic provides a clear view of a company’s financial health and stability. Everything works well for the business if current assets surpass current liabilities; but, if the contrary is true, with liabilities above existing assets, it is a solid indicator that changes must be made to avoid additional loss. The more significant gap between what you own and what you owe demonstrates the company’s sound financial state. FlexiLoans provides MSME business loans with affordable business loan interest rates with a completely online process.

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