A working capital loan is a loan that has the purpose of financing the everyday operations of a company. Working capital is a financial parameter which represents operational liquidity available to a business, organisation or other entity. Conversion of cash through various stages viz., raw material, semi-processed goods, finished goods, sales, debtors and bills receivables into cash takes a certain period of time that is known as ‘length of operating cycle’. Longer the operating cycle time, the more is the working capital required and one other important factor for the need of working capital is credit allowance to the customers. Every organisation needs the working capital loans to meet short term fund requirements.

Some of short term loan are as follows:-


    A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.


    A bank guarantee is a guarantee from a lending institution ensuring the liabilities of a debtor will be met. If the debtor fails to settle a debt, the bank covers it.


    A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.


    Working capital loan is sanctioned by Banks for working capital purposes like holding of inventory, receivables and build-up of other current assets in a business. Working capital facilities are renewable every year.

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