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Closing Of Section 8 Company

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About Closing Of Section 8 Company

Promoters engaged in the business not for profit ideally go for registering a company under Section 8 of the Companies Act, 2013. Once a company is registered under Section 8 either as a public or private such company is free from not using the words private limited or public limited after the key word of the company. A partnership firm can also become a member of Section 8 Company.

These companies often find it difficult to shut down the company as this company is having the license to operate as Charitable Company it is required to surrender that license by converting the company into a normal company other than a Section 8 Company.


Seasonal sales fluctuations

It is the most common reason to take out this sort of loan. It helps to pay the everyday expenses when the sales get slow. There can be a chance that businesses take out working capital loan before a busy season for allocating their capital somewhere else.

Non-steady cash flow

Some businesses take a longer period of time for paying invoices and that’s why their inventory takes a lot of time for turning it over. This sort of loan can be used for boosting the cash flow so that they always have the money whenever they need it.

Cash Cushion

The working capital loan can be useful if the business doesn’t have adequate cash reserves. This ensures that they have additional capital in case of any emergency.

For capitalising on an opportunity

It can be quite frustrating to lose a big opportunity due to insufficient funds. A working capital loan can help a business owner in grabbing that opportunity by offering the required funds. It can turn out to be good for the business in the long run.
So if you own a seasonal business and often face risks and challenges that create problems in your annual revenues, then you should go for a working capital loan. These loans can absorb the blows created by these risks as having enough cash flow is the key to success. It will not only cover your day to day operating expenses but also helps in investing in the future operations of your business.
The working capital loan will help your business to fill larger orders by covering the expense of manufacturing and shipping the product. It will carry your business until you get the payment for your order.


No need for any collateral

If you have a good credit history, then you may become eligible for unsecured working capital loans. You don’t need to put up your inventory, business or any important thing for securing the loan. However, the payment of the loan is critical as the banks will come after you.

Speed and Flexibility

One of the biggest benefits of working capital loan in India is that eligible firms can get short-term loans that include inventory loans, accounts receivable credit lines or bank lines of credit in a shorter period of time. These loans are generally flexible with varying repayment terms and interest rates, that help the firms with the seasonal fluctuations in smoothing out their cash flow.

Spending money at your discretion

Generally, the working capital loan has little to zero restrictions. The only thing lender expects is that you are using the cash for increasing revenue or maintaining daily operations.

Types of Working Capital Loans

Trade Creditor

Trade creditor working capital loan is offered by a present or potential supplier. He/She will throughout check the credit history of your company before securing this type of loan.

Bank Overdraft Facility

Your company’s relationship with the lender decides the interest rate and the maximum line of credit that you can receive. One great benefit of the bank overdraft facility loan is that you only need to pay the interest that is applicable on the overdrawn amount. However, the rates are generally set above the prime rate of the bank.

Account Receivable Loan

The account receivable loans are based on the confirmed sales order value of a business. It is perfect for a company who require funding for filling a sales order. However, you need to be reputable and have a good credit history for getting this type of working capital loan.

Factoring or Advances

The Factoring working capital loan works in a similar way as the accounts receivable loans, the only dissimilarity is that the value of the loan is based on the future credit card receipts. This type of loan is perfect for the businesses who accept the credit card payments.

Short term loan

A short-term loan comes with a fixed interest rate for a maximum term of 12 months. The business’s good credit history and relationship with the lender can allow them to get a short-term loan without securing any collateral.

Equity funding from investors or personal resources

This type of loan is perfect for a new business that does not have a good credit history. Equity funding is generally obtained from personal resources.

Frequently Asked Questions

Working capital is the amount of cash a business can safely spend. It's commonly defined as current assets minus current liabilities. Usually working capital is calculated based on cash, assets that can quickly be converted to cash (such as invoices from debtors), and expenses that will be due within a year .

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.

Working capital loans can help you pay for operational costs, such as rent, payroll and debt payments. You'll likely pay higher interest rates for working capital from alternative lenders than from banks. Working capital financing options include a term loan, a business line of credit or invoice factoring.

Working capital is a measure of both a company's operational efficiency and its short-term financial health. The working capital ratio (current assets/current liabilities), or current ratio, indicates whether a company has enough short-term assets to cover its short-term debt.

Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt and operating expenses. Basically, working capital is used to keep a business operating smoothly and meet all its financial obligations within the coming year.

A line of credit lets your business tap into funds to bridge gaps in cash flow or expand your business. A business line of credit can be secured (i.e. you put up collateral) or unsecured. Both options involve an application, approval process, and borrowing contract, similar to a credit card.

Working capital is calculated as current assets minus current liabilities Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses

A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, so they count towards the calculation of the company's working capital.


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