Working Capital Finance


A.    Working Capital Finance:

A Working Capital Finance is a lending agreement made between business owners and financial institutions for short term financing to cover any business day-to-day operational expenses in exchange for specific borrowing terms. These loans are not used to buy long-term assets or investments, are instead used to provide the working capital that covers a business short-term operational requirement, such as accounts receivable, inventory, payroll, overhead, and to provide liquidity to meet day-to-day other operational expenses. Financial institutions are willing to give them the money in advance, so long as they pay it back on an agreed-upon schedule with interest.


B.    Purpose:

Working Capital Finance is a short term loan facilities that can avail by the business entity to meet the following business needs rather than personal needs:

-  Improve cash flow;

-  Inventory purchase;

-  Accounts receivable;

-  Purchase raw materials;

-  Overcome unpaid invoices;

-  Meet-up payroll requirement;

-  Improve and expand new market;

-  Meet-up other day-to-day operational expenses;


C.    Benefits:

-  Tax benefits;

-  Revolving facilities;

-  Various loan format;

-  Renewable facilities;

-  No sharing of profits;

-  Convenient and easy;

-  Competitive interest rate;

-  Flexible enjoyable tenure;

-  Improved business credit;

-  Flexible repayment policy;

-  Low processing fees & charges;


D.    Some Basic & Common Features of Working Capital Finance:

Now a days, various financial institutions are offering most attractive features for the consumers, who wants to avail the Working Capital Finance facilities. Followings are some basic and common features of Working Capital Finance offered by most of the financial institutions that need to be kept in mind:


       (a)   Who Can Avail?

              -  New Entrepreneurs / Businessman;

              -  Existing Entrepreneur / Businessman;


       (b)   Eligible Entity Type

              -  Proprietorship;

              -  Partnership Firm;

              -  Private Limited Company;

              -  Public Limited Company;


       (c)   Eligible Business / Project Type

              -  New Business / Project Setup;

              -  Existing Business / Project Expansion;


       (d)   Eligible Business / Project Nature

              -  Manufacturing;

              -  Trading;

              -  Service;

              -  Agriculture;


       (e)   Applicable Areas

Any business viable area in Bangladesh.


       (f)    Entrepreneur / Businessman Age Limit

              -  Minimum Age     :  18 Years;

              -  Maximum Age    :  65 Years;


       (g)   Professional Experience

Required professional experience are varies based on business / project credential. In average cases, most of the financial institutions are referring following professional experiences for the consumers.

              -  Businessman     :  Minimum 2 years of business experiences;

              -  Professional       :  Minimum 3 years of professional experiences;


       (h)   Interest Rates

All Banks are currently offering 9.00% or lower interest rates for Working Capital Finance facilities. NBFI’s also offering Working Capital Finance facilities against little bit higher interest rates with additional key features.


       (i)    Fees and Charges Related to Working Capital Finance

Apart from interest charges, some additional fees & charges may also applicable to a Working Capital Finance. Followings are some of the most common fees & charges that should be kept in mind:

              -  Stamp duty;

              -  Processing fee;

              -  Late payment fee;

              -  Property valuation charges;

              -  Document verification charges;

              -  Other fees & charges;


       (j)    Loan Type

              Most of the financial institutions are referring following enjoyable formats.

              -  Cash Credit;

              -  Over Draft;

              -  Time Loan;

              -  Short Term Loan;

              -  Bank Guarantee;

              -  Instant Bill Purchase;

              -  Cash Against Document;

              -  Local & Foreign Bill Purchase;

              -  L/C (B2B, Sight, Deferred, UPAS);


       (k)   Loan Tenure

              Consumers may enjoy this facilities up-to 360 days. It is renewable in nature based on relationship.


       (l)    Loan Limit

Depending on business / project credential. Most of the financial institutions are offering minimum 10 lac or maximum 70:30 Debt-Equity Ratio.


       (m)  Disbursal Time

Depending on business / project credential. In average cases, most of the financial institutions are completing the total procedure within 30 working days.


       (n)   Securities / Collateral

              As Working Capital Finance is a secured loan product, followings are the properties is considered as security / collateral.

              -  Flat;

              -  Land;

              -  Building;

              -  Civil Construction;

              -  Capital Machineries;

              -  Personal Guarantee;

              -  Other Mortgageble Securities;


E.    Factors Affecting on Working Capital Finance Eligibility:

Working Capital Finance eligibility depends on many more factors. Most of the financial institutions are considering following eligibility factors before approving any Working Capital Finance application.

-  Business age;

-  Business plan,

-  Business nature;

-  Business location;

-  Business turnover;

-  Feasibility analysis;

-  Entrepreneur’s age;

-  Repayment History,

-  Cash Flow analysis;

-  Banking relationship;

-  Business experience;

-  Collateral type & value;

-  Other loan burden (if any);


F.    Things to Consider before Applying for a Working Capital Finance:

Before applying for a Working Capital Finance, consumers should consider following factors.

-  Loan limit;

-  Interest rate;

-  Renewal option;

-  Revolving option;

-  Processing time;

-  Fees & charges;

-  Required documents;

-  Compare all financer’s rates & features;


G.    How to Improve the Chances of Availing a Working Capital Finance:

As Working Capital Finance is a secured loan product, lenders have a pre-decided set of rules (credit policies). Many loan applications get rejected as the borrower do not fulfil the basic set of rules of lenders for approval of the Working Capital Finance application. Hence, the borrower works on improving his or her chances of availing a Working Capital Finance facilities using some simple tips.

-  Proper business plan;

-  Identify the right lender;

-  Avoid negative balance;

-  Ensure healthy cash flow;

-  Include all sources of income;

-  Keep proper financial records;

-  Maintain clean past loan records;

-  Identify options for bad credit loans;

-  State the amount of loan exactly required;

-  Be honest and provide accurate information;

-  Maintain entrepreneur’s professional stability;

-  Avoid multiple loan applications simultaneously;

-  Apply for a loan amount based on repayment capacity;

-  Provide all required documents as of lenders requirement;

-  Build & maintain smooth & functional relationships with the lenders;

-  Try to keep a gap of minimum 6 months between two loan applications;

-  Provide totally clean / genuine and mortgage-free / problem-free collateral as of lenders requirement;

-  Prepare complete Working Capital Finance proposal supported by all relevant documents as of lenders requirement;

-  Prepare business / project profile including market analysis data & feasibility study report along with technical & financial explanation;


H.    Required Documents:

To apply for Working Capital Finance there are various types of information / documents are required. Proper documentation is the only possible way to avail the loan facilities. Most of the financial institutions are considering similar guidelines in respect to the documents required for Working Capital Finance. A generic list of such documents has been provided below:

-  Complete loan application;

-  Complete business / project profile along with technical & financial explanation;

-  Proof of business / projects feasibility (technical, financial, business, banking);

-  Identity of business / project (all related permission. license, NOC, registration etc);

-  Proof of entrepreneur’s age, identity, experience, address, nationality, net-worth etc;

-  Securities (clean & genuine) related all documents as a collateral according to the lenders requirements;

-  Other information / documents related to the business / project according to the lenders requirements;