Working Capital loan: Why It Is Essential for the Success of a Business

Posted by Digital on September 25th, 2018

India is in the lane of robust economic growth. As per the official figures, the economy was valued at .2 trillion in 2016, making it the world’s seventh largest economy in terms of nominal GDP. India has all the exact ingredients in place to attain this phenomenal growth; the country’s millennial population is massive, there’s availability of cheap labor, the government’s policies are positive, Indians have displayed high adoption of the latest technological advancements and the SME sector is budding at a fairly healthy rate.

The SME sector is crucial to the development of the Indian economy. It contributed 40% of the nation’s exports and 45% of total manufacturing output in 2015. The sector’s contribution to India’s GDP is anticipated to grow from 17% recorded in 2010-2011 to 22% by 2020.

In spite of these facts, the SME sector has witnessed some challenges with regards to SME finance. The needs for cash to manage daily operations and the inability to access commercial finance have slowed down the development of SMEs.

Why Working Capital is fundamental for Any Business?

Every business needs some funds to run their daily, weekly and monthly operations. Working capital is, thus necessary for the smooth working of a business. The main reasons for working capital being so important are:

Enhance Solvency: Working capital helps a business to operate smoothly and meet all its short-term expenses, purchasing raw materials, payment of salaries and meeting overhead expenses. Some of these payments cannot be postponed. Having sufficient liquidity helps the continuous flow of production; thus, maintaining the solvency of a business.

Better Goodwill: When a business is able to punctually meet its regular expenses and pay salaries on time, it generates goodwill, not just among the employees but with suppliers and distributors as well.

Continuous Supply of Raw Materials: Immediate payments make sure regular supply of raw materials. Suppliers of raw materials are generally apprehensive about small businesses being able to make the payments and do not present a suitable credit period. The failure to pay suppliers can result in production coming to a standstill.

Improved Ability to Face Any Crisis: Apart from the smooth functioning of business operations, working capital makes sure that any financial crisis can be handled without any difficulty. At times businesses face an unexpected event, like an order being rejected, adverse weather conditions or the unavailability of a particular resource. A business that has adequate business funding can cushion itself against such situations. Therefore, the financing of working capital defines the financial health of a business and how smoothly it can operate under different circumstances.

SMEs need financing of working capital. They need swift and easy availability of commercial finance, without the need for extensive paperwork and collateral. The solution finally arrived in the form of FinTech lenders. The FinTech segment has revolutionized the financing of working capital for SMEs by using cutting-edge technology in the loan application, underwriting and approval processes within a matter of days.