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A working capital loan is a loan that is taken to finance the everyday operations of a company. Working capital loans are not used to buy long-term assets or investments and are, instead, used to cover accounts payable, wages, etc. Companies that have high seasonality or cyclical sales cycles usually rely on working capital loans to help with periods of reduced business activity.
Working Capital Loan can be defined as a loan availed by the firms for covering their daily operational expenses. These loans are the excellent way for the businesses to become more focused on their growth and generate capital. The working capital loans in India have become popular among the business owners for tackling with their financial needs. These loans are not used for buying long-term assets and generally used for covering wages, accounts payable and other similar operations.
This loan is applicable for the small & medium enterprises for augmenting their working capital needs and meeting the daily operational expenditure. The majority of the working capital loans is unsecured, however the loans with high risks need some guarantee. The usual duration of a working capital in our country is from 6 to 12 months.