Organisations require adequate working capital to maintain smooth and uninterrupted day-to-day business operations. A low working capital indicates that the organisation lacks enough cash flow to buy goods for inventory management or to meet its short-term financial obligations. Business owners must be aware of the right ways to get a suitable solution for their short-term credit crunch.
In this regard, they should also know how to calculate working capital. It is one of the initial steps of finding the right financer to run their business operations.
Steps to think about while applying for working capital solutions
Here are the steps individuals need to follow to get the right solution for their working capital requirements:
Step 1: Understanding the amount they require
Before opting for credit to meet working capital needs, individuals need to measure how much capital will be sufficient for their business. For this, they have to consider their regular expenses. It will help them borrow the exact amount and avoid paying extra interest.
Step 2: Determining a suitable working capital solution
At this stage, they need to determine a suitable credit solution. They can get their capital through supply chain finance, commercial loans against property, or business loans.
Among these, supply chain finance can only meet their short-term capital needs, and in a commercial loan against property, borrowers will have to keep their real estate mortgaged with lenders. Nevertheless, a business loan can be a suitable option for individuals. It will let them get the credit for a long term without collateralising their commercial properties.
Step 3: Measuring the suitable loan repayment period
They also need to determine what repayment period they will need according to their financial capability. With a business loan EMI calculator, they can easily measure a suitable tenor. It can display the instalment amount for a particular interest rate, loan amount and the intended tenor. If they find that for a particular tenor, their instalment becomes more than their budget, they can increase the input value of the tenor to check whether that fetches them a manageable EMI amount.
Step 4: Comparing the interest rate and charges
Before applying for working capital, they must know much interest rate or charges they have to pay for it. They can also compare different lenders in the market to find one that takes less charge and interest rate. It will help them reduce their borrowing cost.
This way, individuals can choose cost-effective working capital solutions for their business and keep their organisation on the growth trajectory. Nevertheless, they need to be aware of what action they need to take if their business run in loss.
In this regard, measuring working capital becomes important for a business. This will help an organization to understand its financial strength.
How to calculate working capital?
To calculate the working capital, individuals will have to subtract the current liabilities from their current assets. For example, if a company has Rs.50 lakhs as liabilities and its total asset amounts to Rs.80 lakhs, its working capital will be Rs.(80-50) lakhs = Rs.30 lakhs.
Individuals also need to know how they can ensure that their businesses do not run out of working capital. This way, they can confirm that their business operations are not affected by a sudden credit crisis.
Furthermore, several Indian lending institutions extend pre-approved offers on their financial products, such as business loan, personal loan and credit card. Borrowers can significantly expedite the loan application process by accepting this benefit. They just have to provide their names and contact details to check their pre-approved offers.In conclusion, business owners need to choose a working capital solution that can give them a lower interest rate and a suitable tenor. This way, they can clear off their dues without stressing their budget. Nevertheless, without knowing how to calculate working capital, it will be difficult for them to apply for the right credit amount from financial institutions. So, they must consider all involved factors while borrowing.