As the name suggests, working capital loans are meant to finance everyday expenses (such as pay employee wages) related to the daily operation of a business. It is not meant to be used for things such as investing or buying long term assets.

The Benefits of a Working Capital Loan

The immediate benefit of a working capital loan is that it's quick and lets business owners efficiently cover any gaps in working capital expenditures. In addition to the speed, the other noticeable benefit is that it's debt financing and does not require an equity transaction, meaning that a business owner maintains full control of his company, even if the financing need is dire. The quantum of working capital funds can be ascertained by looking into the working capital cycle of the unit. Working Capital Cycle can be explained by way of flow chart as below:   
Cash  ❯ Raw Material ❯ Work in Process ❯ Finished Goods ❯ Receivables ❯ Cash
It is normally presumed that the working capital cycle will be of three months i.e. the period taken for conversion of cash into raw material, raw material into finished goods, finished goods into receivables and receivables into cash.  Depending on the nature of activity and various other factors it may be either more than 3 months or lesser than 3 months.  The working capital limits can be availed by way of cash credit, bills limit, Letter of Guarantee, Letter of Credit etc.

Types of Working Capital Finance

• Funded facilities, i.e. the bank provides funding and assistance to actually purchase business assets or to meet business expenses.
• Non-Funded facilities, i.e. the bank can issue letters of credit or can give a guarantee on behalf of the customer to the suppliers, Government Departments for the procurement of goods and services on credit.

Cash Credit - This is a running account facility that is extended for a short period, not more than 12 months and reviewed regularly. Banks normally lend money against the security of stock and debt. In addition, the borrower only has to pay interest on the amount actually utilized by it. In order to repay and close the account , simply deposit the outstanding dues into the account.

Overdraft Facility - Get access to cash immediately as and when required, means the act of overdrawing from a Bank account. In addition, the borrower has to pay only the interest on the amount actually utilized by it. In order to pay, simply deposit the outstanding dues into the account.

Pre-shipment Finance/Packing Credit - Short term, pre-shipment financing enables exporters to procure raw materials for the manufacture of finished goods for export. The facility is available both in Indian Rupee and in major foreign currencies to Exporters, enabling the exporters to compete in global market against others.

Post-Shipment Finance - Short term, post sale financing to the exporter to provide liquidity during the credit period permitted to the overseas buyers to make payment. The facility is available both in Indian Rupee and in major foreign currencies to Exporters, enabling the exporters to compete in global market against others.

Buyers Credit - As an importer, one can avail of Buyers Credit facility at very competitive rates. One can make the import payment to its overseas supplier by availing the buyers credit and can repay the lender at a later date. The funding is arranged from the overseas network branches and one can avail of this product in major currencies. Availing Buyers credit would be subject to compliance with the bank’s internal process and policy requirements.

Short term corporate loans - These will be demand loans of less than or upto 12 months’ tenor availed by borrowers to support temporary cash flow mismatches or to avail short-term interest rate arbitrage.

Long Term corporate loans - These will be demand loans of 12 months to 36 months’ tenor availed by borrowers to support long term augmentation of working capital , procurement of certain assets , cash flow mismatches etc

Bank Guarantee - Local and foreign currency Bank Guarantees issued on the behalf of the borrower against specified collaterals for its business needs.

Letters of credit (L/C) - An L/C is a Banker's undertaking on behalf of a constituent to pay to a third party against compliance of stipulated conditions. This involves, irrevocable sight and usance L/Cs, back to back L/Cs, Standby L/Cs & Inland & Foreign L/Cs.

Products Tenor

• Working Capital Overdraft – 1 year 
• Short Term Loan (STL) – 180 days
• Letter of Credit and Trust Receipt (LC/TR) – 180 days 
• CBN (Discrepant) – 180 days
• Invoice Financing – 180 days 
• Bank Guarantee / Performance Bond – 5 years for cash secured, otherwise 1 year
• Shipping Guarantee – 180 days
• Plain FX Forwards – 180 days