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C2FO Powers Early Payment Programs for the World’s Largest Companies.
Discover expert insights on working capital, cash flow optimisation, supply chain management and more.
We believe all businesses can and should have equitable access to low-cost, convenient capital to grow and thrive.
Working capital financing is crucial for businesses just starting or looking for growth. Find out how you can improve your eligibility and increase your chance of approval.
With spiking interest rates and inflation, many of you may be considering working capital financing for your micro, small and medium enterprises (MSMEs). Adequate working capital provides you with cover for your daily expenses and emergency requirements. It’s also crucial if you are looking for growth opportunities for your business.
In the current economic scenario, adequate working capital helps you stay prepared for unexpected price hikes. However, even if you have sufficient and reliable cash flow, you might need financing for the expansion and sustainability of your business. Financing will be all the more crucial if your business is still getting established and you have an inconsistent cash flow.
There are various types of traditional financing options available to secure working capital, such as business loans, lines of credit and business credit cards. There are also several nontraditional financing options available, including:
While working capital is critical for the growth of your business, it can be a challenging task to secure financing. Here are a few tips to ensure that your business is eligible to secure working capital financing.
Before you apply for financing, it is advised to access your credit report from a consumer reporting company like CIBIL or Experian. A credit score of 700 and above is ideal for qualifying for bank loans and getting the best terms and interest rates.
In the first step, lenders will review your credit report to analyse your risk as a borrower and decide your loan’s interest rate. Next, they will check your credit history, your track record with other lenders and non-banking financial companies (NBFCs), and your ability to pay the debt. They are also critical of red flags, like loan defaults and liens.
If your credit score is low, analyse the report for potential issues and work towards improving them. You can also increase your financial eligibility by clearing your outstanding debts, paying your bills on time and working towards higher credit limits.
If possible, incorporate or establish your business as a limited liability partnership (LLP). These have credit histories, so you don’t have to depend on your personal credit rating for financing.
Take the time to build a more active and healthy credit history. This step is advisable to improve your financing eligibility, especially if your credit score is low or you don’t have much credit history.
Apart from your credit score, cash flow is another factor that lenders analyse to see whether you are generating enough revenue to pay back the loan. Calculating your quarterly cash flow can provide you with a better sense of your eligibility. It helps you gauge the loan payment you can realistically afford before applying for financing. Cash ratio is another critical metric you must determine to calculate your on-hand liquidity, which banks often use to assess eligibility.
Lenders also look for consistent revenue generation for loan approvals. In addition, lenders usually require borrowers to have been in operation for at least two years.
Early payment is another option to establish a steady flow of cash. Programs like the one C2FO offers give your customers discounts for early payments, increasing your working capital. They enable a more steady revenue stream and improve your financing eligibility. Such programs have the advantage of being more convenient and cost-effective compared with other lending options.
Lenders also want to understand your business strategy and how you plan to utilise financing. Developing a robust and detailed business plan will show the lenders your seriousness towards the venture and your plan to repay the loan. It also allows you to tell lenders your business’s story and convince them it’s worth their time and money.
Develop a business plan that includes:
Then, review the document with a business plan expert to get feedback and ensure there are no information gaps that might discourage lenders.
Lenders can gain more confidence in your application when you come prepared with all the required documentation. Beyond your business plan, this includes personal and business financial statements; financial records, such as income tax returns and loan application history; and legal documents like business licenses. Moreover, hiring a certified chartered accountant to review your financial and accounting records for accuracy, clarity and completeness can help you improve your financing eligibility.
Furthermore, as part of your documentation due diligence, you should consider setting up your business as an LLP. These corporate structures protect your personal assets and appear more credible as long-term ventures to lenders. Auditing your information in the public domain — like websites, social media platforms and customer feedback is also key to analysing potential concerns. Lenders won’t request this information, but they might review your online presence as part of the process.
Your eligibility can take a hit if you apply for loans indiscriminately, as financial applications are recorded on your credit report. This is why it is advised to strategically apply for financing by researching an option that fits your needs. It also helps you in learning financial terminology, processes and types.
Hire a financial advisor to help you explore various traditional financing options. These advisors are also valuable for determining your eligibility based on factors you might not have considered earlier — like how lenders approach your particular industry.
Doing your research, seeking professional support and staying up to date with the processes can add to the confidence of the lenders and position your application more favourably. It might also help you analyse whether a nontraditional financing option is better for your business.
It does not matter whether you are just starting or looking forward to growing your business; working capital financing can help you meet expenses and support your daily operations. Securing working capital financing can be tricky, especially if you have a low credit score or lack a credit history. However, seeking expert advice, building a strong credit and enabling a reliable cash flow can boost your eligibility and support business growth.
If you are looking for working capital now, you might not have the time or resources to build a higher credit score and meet other eligibility requirements for business loans. However, if you are considering nontraditional financing, learn more about C2FO’s Early Payment solutions.
To know more, please contact the C2FO team at +91 7035 7035 93 or email at [email protected].
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