According to the figures published by the Ministry of Micro, Small & Medium Enterprises, the number of registered MSMEs has increased to 25.13 lakh units in FY2020, registering a growth of 18.49% from the previous year. The report also elaborates that the MSME sector is dominated by micro-enterprises.
Thus, due to the proliferation of small enterprises, the demand for working capital funds in this sector, or otherwise, is only set to increase. Following is a guide about the best ways to raise working capital finance to keep businesses running smoothly.
Different ways to raise working capital finance for your business
Most businesses need to raise working capital finance from time to time when they do not have adequate funds on hand or assets to liquidate. Following are some of the effective ways which may be adopted –
- Overdraft facilities
Opting for overdraft facilities from financial institutions is one of the fastest ways to raise short-term finance, since the withdrawals that can be undertaken over current account balance. However, only a set amount can be borrowed through overdraft. The limit of overdraft facility depends on the business’ turnover, credit history, collateral assets etc.
- Managing trade credit
Maintaining good rapport with creditors is also a viable way to obtain financing. Trade credit is provided in the form of equipment and business supplies, for which the payment can be made on a later date.
This arrangement can be quite useful as business-owners would get time to raise further funds and repay the debt. However, trade creditors are likely to assess past payment records, business volumes and present liquidity status before extending said credits.
- Merchant cash advance
Merchant cash advance can be availed to raise working capital if a business takes payment through cards. Card issuers provide an advance lump sum amount that may be repaid using usual card receipts through the POS machine. Such a method to raise capital can be quite handy for any business that operates without any large asset but engages in regular card transactions each month.
- Working capital loans
A working capital loan is the financing availed by businesses to cover their operational expenditure on a daily basis. Such loans are primarily of two types –
- Secured loans
- Unsecured loans
These working capital loans augment money reserves of business either in the short term or medium-term basis.
Prominent NBFCs such as Bajaj Finserv offer easy and quick business loans of up to Rs.45 lakh at an attractive rate of interest. The repayment tenor, in turn, ranges up to 84 months.
The financial institution also provides pre-approved offers to facilitate the loan application process. This offer is extended on a wide range of credits such as personal loan, business loan etc. Submit your name and contact number to check your pre-approved offer now.
- Invoice discounting
Invoice discounting is, perhaps, one of the simplest forms of invoice financing. It involves account receivables and invoices being leveraged to avail capital. Moreover, this discounting serves the objective of catering to more business volume as well. It is undertaken through the short-term mode of rotating money and raising funds.
- Revolving credit line
Revolving line of credit extended by the lender makes a certain sum available at all times, which ensures your business never runs out of working capital. Repayment is to be done at the convenience of the borrower. You can obtain such funds either in instalments or a lump sum amount.
- Equity funding from investors
Equity funding from investors is most suited for a new business that has not attained the desired credit history. Such funding is usually obtained from personal resources of the business owner.
Even with the availability of these different funding options for working capital, any financier or lender will be checking the credentials and business vintage before credit approval. Thus, one should gather more information about the eligibility criteria and how much working capital does the business need beforehand. One needs to assess the best-suited option for the business and accordingly make an informed choice.
