What is Working Capital Loan?
A working capital loan is a loan taken by businesses to meet the daily operational expenses. Working capital loan software used by top lending institutions in the world to automate the entire loan life cycle & optimize the loan process. Working Capital Loan Software is used to finance the daily activities of a business. These loans are an ideal way to promote growth and generate capital. It is a very popular concept among businesses and helps the owners meet financial needs. It is important to remember that these loans are not used to purchase long terms assets. They are used mostly for common requirements like covering wages, accounts payable, etc. They are ideal for small and medium enterprises which have trouble tackling cash flow problems during the long payment cycle from buyers.
In most cases, working capital loans are unsecured and are provided on the basis of the financial condition of a business. However, if the loan amount is very high, some form of collateral is sometimes taken. They are often called as seller-centric finance because the loan is offered based on the credentials and eligibility of the seller even though the financial institutions validate the buyer’s profile, more weight age is given to the seller’s capability.
What are the advantages of the Working Capital Loan?
Working capital loans have their own set of advantages. The major advantage is that there is no requirement for collateral of any form. The businesses need not mortgage anything for it. These loans are provided in various forms like account receivables loan, inventory loans, factoring of invoices, etc.
The procedure for providing these loans are fast, and the repayment terms are flexible which could be selected by the business on based their individual needs. This helps businesses get through the period between the delivery of goods/services and the date of payment. Moreover, usually, these loans have zero restrictions, which means businesses can spend the amount the way they want to without any restrictions.
What is the process involved?
Working capital loans are provided by both banks and NBFCs in India. They are typically provided based on the outstanding invoices and existing orders of a business. Business owners take the amount to meet their operational needs and therefore, they are not expected to be paid back soon.
The scope of the working capital loans market is enormous. According to various industry analysis, the SME sector has a financial potential of INR 9 lac crores. Therefore NBFCs venturing into this market stand to gain by taking the opportunity of this potential.
As mentioned earlier, the working capital loans tend to be collateral free loans which help the SMEs and organizations in a cash flow squeeze to avail a loan without pledging collaterals.
The working capital loan requires comparatively minimal documentation when compared to other loan products. All a business needs to submit is the KYC documents, proof of business, their up-to-date financial documents and existing invoices/orders (if applicable) when they apply for a working capital loan.
Working capital loans are usually provided for 6 to 12 months. They may or may not require collaterals depending upon the amount of loan. However, usually, they are unsecured loans.
The interest rate typically varies between 11% to 16%. However, this is not sacrosanct. It is subject to vary depending on the lender’s individual policy.
Line of Credit:
Working capital loans extended as a line of credit for SMEs often tend to have low EMI when compared to other options. A fixed credit line is extended to the borrowers for a predefined period of time.
The SMEs have the liberty to withdraw and payback the funds as many times from their credit line depending on their individual needs. The added advantage of paying only interest as EMI tends to reduce the repayment burden considerably.
What are the challenges faced by Financial Institutions?
The working capital loan being a collateral free loan product poses a higher risk factor for financial institutions when compared to other loans. In order to optimize the business follows a stringent process and monitor the loan performance regularly. Despite the rigorous norms, the institutions may face the following problems when they offer a working capital loan:
Despite being a loan product with comparatively minimal documentation, it requires high manual intervention for cross-checking and verifying the authenticity of submitted documents. Even if the financial institutions use specific solutions to validate the legitimacy of the documents, the manual intervention becomes mandatory to aggregate information/ results from different products and updating them on the loan software for reference. This process of increased manual effort is prone to errors.
The financial documents submitted by the clients are not automatically validated. The lack of this feature may cause problems when the financial reports are generated. This outdated process of manual generation of reports would not give any actionable insights on the performance of the business since there is no automatic threshold monitoring.
The lack of standardized and structured data can make the document management aspect a nightmare. Manual data entry aspects of a workflow process are not only prone to errors but also causes high cycle times. Data extraction and migration across different management systems might be one of the major bottleneck issues which are the most time-consuming aspects of the loan lifecycle.
As there is no option to upload source documents directly into the loan software, the process of extracting and loading data into a lending software may lead to inaccuracies and cause a substantial increase in the operational costs. The lack of control over the loan monitoring process and obscure visibility of the borrower’s financial data has an adverse effect on the review time taken for an application.
The process of storing data in an array of disparate databases makes it hard to retrieve the relevant data from the appropriate sources for the analytics team to create, forecast or monitor both the performance of loan products and the loan officers. The too much dependency on legacy systems and too-many manual interventions may cause critical gaps in business intelligence.
In order to perform a granular review of the end-to-end loan lifecycle including the performance of employees, the presence of robust analytic engine which could capable of creating ad-hoc reports in a frequent interval is vital. Without actionable insights to work on the financial institutions may run into the trouble in assessing and predicting risks across the loan portfolio.
Why CloudBankIN for Working Capital Loan Software?
CloudBankIN is a popular working capital loan software used by prominent financial institutions across the world. Our centralized lending solution will automate the loan lifecycle completely, and its intuitive nature will streamline the inefficiencies in loan process helping the financial institutions to use new opportunities efficiently and expand adequately. Here is a list of reasons why CloudBankIN is the best working capital loan software which would meet the needs of every financial institution:
- CloudBankIN helps lending institutions achieve end-to-end automation with an easily customizable interface which could be configured to match the working capital loan Software workflow and define business rules to validate everything from data entry to assigning an application queue.
- With CloudBankIN distinguishable data integration aspects lenders could upload, store and manage all financial documents and loan application easily without resorting to use a third-party software for document management.
- CloudBankIN would reduce the workload of loan officers considerably with its customizable features which would completely digitising the loan life-cycle from loan origination, data-entry and document upload, verification, underwriting, approval, closing and funding with its integrated rule engine.
- Our powerful reporting module simplifies the laborious task of obtaining business insights a cakewalk with nearly 100+ pre-designed reports which would help financial institutions recognise, measure, and monitor diligence, and identify distinct opportunities hidden in data.
- CloudBankIN facilitates connection with key credit risk analyzers and bureaus to retrieve vital information about the risk factor involved and leverages the said data to establish the price and decision models based on it. This aspect helps lenders create an optimal loan risk environment.
Obtain end-to-end automation with our innovation working capital loan software which includes a dynamic decisioning interface, completely customizable add-ons, tailor made features and a powerful reporting module.