How to apply for a Working Capital Loan if you are an SME

How to apply for a Working Capital Loan if you are an SME

21 September, 2023

When large conglomerates start a new venture, they have the expertise and the financial clout necessary to nurture a new business in its initial days. Small and medium enterprises (SMEs), on the other hand, often start with humble origins. To achieve astronomical growth, a business needs an initial capital outlay, which is then converted to revenue sources. SMEs often find it difficult to arrange this cash injection. It needs to rely on limited capital and often ploughs back its profits to help the business grow. But sometimes, even that may not be enough.

A timely inflow of finance can solve various SME problems, like meeting overheads, accepting bulk orders, running a marketing campaign and so on. The absence of this inflow can delay the growth prospect of the business or even put it in a position of distress. But SMEs can ensure that they have this source of finance available to fall back upon.

Working Capital Loans

Imagine an SME that is operating at a modest scale. It suddenly receives an enticing export order just before Christmas. Or the same SME goes through a lean period with low monsoon sales. In both cases, it will need additional cash. In the first case, it would be to buy raw materials and accept the export order. While in the second instance, it would be to pay overheads and past vendor dues. The loans taken to cover these working capital requirements are known as Working Capital Loans.

  1. The first step towards applying for an SME Working Capital Loan or checking the eligibility would be to approach a few banks

  2. You have to check the eligibility requirement of the banks. For instance, to avail of an HDFC Bank Working Capital Loan for small businesses, the SME can be a proprietorship firm, partnership, LLP or a company

  3. Also, check the types of businesses – engaged in the manufacturing, distribution, retail, trading and service sectors – that are eligible for the Working Capital Loan

  4. The SME may also be required to provide collateral to avail these loans like property, deposit, liquid securities etc.

  5. Within the scope of a Working Capital Loan, there may be different fund and non-fund-based facilities available for you. For instance, an HDFC Bank Working Capital Loan for small businesses may be a cash credit, overdraft, term loan, credit guarantee trust, export packing credit, pre-shipment finance, bill discounting, letter of credit or a bank guarantee

  6. Most banks offer web forms where you can apply for a loan. In these application forms, you have to provide the details of the SME, including address, financial summary, existing loans and liabilities etc.

Documents required

The documentation for a Working Capital Loan may vary from bank to bank. However, it would include

  1. CA certified or audited financial statements

  2. Bank statements for the last six months

  3. Term loan repayment track record

  4. Collateral documents

The period required to avail of Working Capital Loan

The SME business applying for the loan must be able to prove that it is at least three years old. The business must be profitable in the two years immediately before the loan application. There may be a specified turnover requirement for Working Capital Loans as well. For an applicant that is taking an HDFC Bank Working Capital Loan, they must have a business turnover of at least Rs 60 lakh.

The repayment of these loans can be customised conveniently. HDFC Bank Working Capital Loans can be designed to have a repayment schedule that matches the cash flow of the business.

HDFC Bank Working Capital Loans also offer collateral-free loans to retail traders under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme. These loans provide multiple fund and non-fund facilities and have several collateral options. With HDFC Bank, SMEs can go for a Working Capital Loan with attractive interest rates while enjoying the service of a dedicated relationship manager and fully digitised services.

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. XXX Loan at the sole discretion of HDFC Bank Limited. Loan disbursal is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.

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