Table of Contents

Table of Contents

Significance of Working Capital Management for MSMEs
How SCF is better than other financing options
Why SCF is synonymous to easy financing
How SCF is Transforming MSMEs in B2B Industries
Make your business credit ready through SCF

Complete Guide on Working Capital Financing for Your MSME

April 3, 2024
min read

Working capital represents the amount of available capital that a business can use for its daily operations. Small and medium businesses might face a shortage of working capital due to rising receivables with their buyers or when their current liabilities outweigh the current assets. Working capital financing in the form of a working capital loan for MSMEs, invoice discounting, or any other financing tool helps MSMEs meet such short-term financing needs for their business to keep their operations running.

Benefits of Working Capital Financing

Working capital financing includes working capital loans for MSMEs that are taken and paid back within a short span of time, unlike most business loans that have to be counted into long-term liabilities on MSMEs’ balance sheets. Following are other benefits of working capital financing:

1. Collateral-free Working Capital Loan

Working capital financing doesn’t require collateral. Some of the traditional banking institutions may be wary of lending to MSMEs because they don’t have a long credit history. They may put strict collateral requirements to secure MSME loans. MSMEs are not able to adhere to the requirements of pledging collateral as they usually do not possess property or any other type of security to be kept as collateral. 

Working capital financing with its feature of zero collateral resolves this funding obstacle for MSMEs and allows them to secure collateral free loans for their working capital needs.

2. Quick Approvals

MSMEs need immediate working capital loans to improve their cash flow. Business financing companies understand the need for rapid processing of your loan applications. Unlike other loans, applications for working capital financing can be processed quickly. Some institutions process working capital loans in less than 72 hours and are equipped with an online portal to make the process easier and faster. With such speedy approvals, MSMEs can access funding faster and keep their operation running smoothly.

3. Flexible Repayment Options

Working capital financing offers greater flexibility for the repayment of loans. MSMEs can choose repayment options at their convenience. There are also no hidden charges; only a one-time processing fee is charged to the MSME. Depending on the business profits, account receivables, and many other factors, the business financing companies calculate the credit score for MSMEs, which affects the interest rate that is offered.

Types of Working Capital Financing

Types of Working Capital Financing

1. Working capital loans

Working capital loans are typically loans of small ticket sizes that are given for a tenure of anywhere between one month and 3 years. The amount of the working capital loan depends on every MSME. You can avail of collateral free loans based on your requirements through this financing option.

2. Overdrafts

If your account balance falls below zero, business financing companies and banks provide overdraft protection. An overdraft facility involves extending credit so that your business can withdraw money even when your account has no funds. Overdraft protection is provided up to a certain amount and is used as a backup in case of unexpected expenses.

3. Line of credit

A line of credit facility allows businesses to borrow money and repay and continue this cycle as often as needed for a certain credit limit. Line of credit enables flexible funding solutions for your MSME. You can use the credit facility as needed, and the interest is charged as soon as money is borrowed. 

4. Invoice Financing

Invoice financing enables businesses to acquire short-term loans based on their unpaid invoices. This type of financing resolves issues around customers taking too long to complete payment and helps MSMEs improve cash flow, invest in business growth, and pay their workers and vendors. Invoice financing involves a processing fee which is a percentage of the invoice amount.

5. Asset Refinancing

In Asset Refinancing, businesses can refinance an asset they own to acquire additional working capital. Over the next few years, your business will have to make monthly payments to cover the asset funding. This working capital financing option is available on equipment and machinery that was financed or bought.


How to Apply for a Working Capital Loan for MSME?

As stated before, the application process for a working capital loan is a quick and simple process. This type of financing can be availed by sole proprietors, limited liability companies, and private limited companies. The documents needed for application include - 

  • Bank statement of your business for the last 12 months
  • Copies of PAN cards of the business owners.
  • Copies of the Aadhaar cards of the business owners.
  • Copy of partnership deed, if applicable.
  • Copy of business PAN card.
  • Proof of business registration like GST or VAT certificate.
Documents required to apply for a Working Capital Loan for MSME.

Where to Apply for a Working Capital Loan for MSME?

The accessibility of working capital financing has improved, with numerous business financing companies and banks providing quick short-term assistance to MSMEs. You can avail a working capital loan for MSME through the following sources.

1. Banking Institutions

Most major banks in India offer working capital financing solutions. You can apply for MSME loans or collateral free working capital loans by visiting the bank website or visiting the bank branch to talk to a representative to guide you through the loan application process. You can also inquire about working capital financing at your current bank, as being an existing customer will further speed up the application process. In such cases, the bank will have a lot of customer information available and would not need to go into various details like credit history.

2. Online Lender Platforms

Tech-enabled business financing and lending platforms offer instant finance solutions for MSMEs. Platforms like Bizongo can help you address your working capital needs and also provide other services like supply chain financing, supply chain automation, procurement management, and much more.

Ensuring steady cash flow is important to ensure business growth. Working capital financing helps MSMEs improve liquidity for maintaining daily business operations as well as invest in the business expansion. 

If your MSME is looking for working capital loan, collateral free loan, or any other type of financing solutions, then Bizongo is your one-stop solution. Our Supply Chain Financing options require minimal paperwork and have short disbursement periods to help you optimize your daily mission-critical business operations. Along with financing, we offer diverse solutions in supply chain automation, digital vendor management, procurement management, and many more solutions to help you run your business smoothly.

Contact us to know more about our working capital financing solutions and get started on your MSME growth journey.

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