Significance of Working Capital Loan for Growing MSME

May 23, 2024
Updated on

The MSME industry is a significant driver of the Indian economy, contributing 30% to the country’s GDP and employing around 110 million people. However, despite the large-scale contribution, MSMEs often need help maintaining steady working capital to manage daily business operations and fund growth initiatives. MSMEs face high loan rejection rates from traditional lenders like banks, as most of them are new to credit. Hence, they lack credit history and often don’t have collateral to pledge against a loan. This issue can be addressed for MSMEs through working capital loans from NBFCs like Kinara Capital.

Working Capital Loan is a credit facility that ensures smooth operations and business growth for Micro, Small, and Medium enterprises (MSMEs) even when the business liquidity falls. According to the BLinC Invest MSME Lending Report 2022, the MSME sector has a total credit demand of Rs 69.3 trillion, growing at a compound annual growth rate (CAGR) of 11.5%. Out of this, less than 15% of the credit demand is catered by formal sources. There is a credit gap of $25 trillion in the MSME sector that might perhaps be resolved by emerging business models. 

MSMEs require working capital for numerous reasons, such as installing high-tech equipment, purchasing raw materials, expanding the business, paying salaries to employees, etc. There are various types of Working Capital Loans to help MSME entrepreneurs. Here are a few. 

Types of Working Capital Loans

Short-term Working Capital

Short-term Working Capital Loans are loans available for a short duration. An MSME can use this type of loan to tide over unexpected expenses or pay for salaries, mortgages, rent and other expenses during financial difficulties. 

Kinara Capital offers Short-term Working Capital Loans to its existing customers, ranging from Rs 50,000 to Rs. 2 lakhs, for a 6-12 months tenure. The short-term loans are disbursed immediately and intended to cover small business entrepreneurs’ immediate financing needs.

Long-term Working Capital   

Long-term Working Capital Loans can help MSMEs finance their businesses’ long-term growth plans or permanent working capital requirements. For example, incurring expenses related to fixed or minimum current assets like machines, land, inventory, etc., are necessary for a company to carry out the business smoothly. As the firm’s size expands, the requirement for permanent working capital also increases.

MSME entrepreneurs can avail of a Long-term Working Capital Loan from Kinara Capital, ranging from Rs 1 lakh to Rs 30 lakhs. The interest rate charged by Kinara starts at 24% p.a., and the repayment tenure can range from 12 to 60 months. 

Bill Discounting (or Invoice Discounting) 

Invoice Financing also called Bill Discounting or Invoice Factoring is another form of a working capital loan. This kind of funding is mainly for small businesses that experience a time lag between raising invoices and receiving customer payments. The lender provides funds against the invoice amount and can finance up to 80% of the invoice amount. The loan amount is cleared once the business receives the payment. 

Bank Overdraft or Credit line 

MSMEs can have access to a bank overdraft or credit line facility, which allows them to withdraw money from their bank accounts even when there aren’t enough funds to cover the entire amount of the withdrawal. This is very helpful when a business doesn’t maintain a lot of cash on hand. It acts as a back-up fund to cover emergency expenses and tide over financial crunches. Even if the business account falls short of funds, payments can still be processed, and the business can function normally for the short term. The MSME then has a grace period to come up with the money to repay the bank.

Account Receivables

MSMEs can use confirmed sales orders or account receivables to apply for a Working Capital Loan. It is ideal, especially if the company needs more funds to fulfil a sales order. However, such loans are only secured if the firm has a reputable history and proven track record of paying debts on time.

Letter of Credit

A credit letter or letter of credit is an assurance from a bank that a buyer’s payment to a seller will be made on schedule and in full. The bank or financial institution would be required to pay the entire payment of the purchase or the remaining amount if the buyer failed to make a payment. A buyer uses the letter of credit for large purchases or general working capital purposes to guarantee the payment will be made. 

A buyer must show necessary documents to the bank that can prove they have adequate assets or a sufficient line of credit to repay before the bank guarantees the buyer’s payment to the seller. The bank or financial institute then collects the full amount from the buyer at the specified time.

Bank Guarantee

It is a non-fund-based Working Capital Loan. The seller or buyer acquires a bank guarantee to outweigh the possible risk due to the non-performance of a certain agreement. It could be anything from a payment to the promise of service. The holder only repeals it on non-performance by the other party. The bank asks for some security or charges some commission.

What are the various features of a Working Capital Loan that Kinara Capital offers? Read on to find out.

Main Features Of Working Capital Loans from Kinara Capital

Collateral-free Business Loans: Kinara Capital provides Unsecured Working Capital Loans to help small businesses accelerate their business growth. All registered MSMEs from the trading, manufacturing, and services sectors can apply for a Working Capital Loan from Kinara without pledging any property collateral.

Easy Loan Approval & Fast Disbursement: MSMEs can easily get Unsecured Working Capital Loans online through Kinara Capital’s myKinara App. It will let them experience a convenient and quick method of acquiring a Working Capital Loan with easy approval and disbursal within 24-hours.

Ticket Value up to ₹ 30 Lakhs: Kinara Capital provides Working Capital Loans from ₹1 Lakh to ₹30 Lakhs. Registered MSMEs from Karnataka, Gujarat, Maharashtra, Andhra Pradesh, Telangana, Tamil Nadu or UT Puducherry can acquire it to fulfil the various working capital requirements of their business.  

Minimal documentation – Kinara provides Working Capital Loans to MSMEs with minimal documentation. Thus, they can get the Working Capital Loan approval online instantly. It helps MSMEs to focus on the maximum utilisation of capital to fulfil the business goals without going through the time-taking documentation procedures.

Doorstep Customer Services: Kinara provides multilingual support to all customers with doorstep customer services in their preferred vernacular language to make an easy loan application process. 

Now that you know the features, let’s look at 5 best ways to help MSMEs maintain positive working capital and maximise profit. 

Grow your MSME with collateral-free business loans

5 best ways to use a Working Capital Loan

Cash-flow management: An MSME owner needs a good plan to manage the cash flow of the enterprise once a Working Capital Loan is approved and disbursed. They should also identify the periods when the business encounters a cash crunch or when large orders may come in and plan the expenditures accordingly.

Invest in inventory: One of the ideal ways for MSMEs to utilise a Working Capital Loan is to restock the inventory to meet their customers’ present and future demands. They can also plan discounts to attract more sales with their inventory stocked.

Planning for seasonal shortfalls: Seasonal businesses can experience a drop in sales or a delay in payments. A Working Capital Loan can help these MSMEs to meet all their routine expenses, such as rent, salaries, and supplier invoices, in the off-season to ensure survival.

Renovate and expand: Working Capital Loan is one of the best mediums for MSMEs to renovate their business premises and execute expansion plans. Renovations can enable small businesses to make the workplace safer and more efficient for their employees. Conversely, a revamp can uplift the aesthetic value of MSMEs in the retail business and draw more customers. Entrepreneurs can also use a Working Capital Loan to relocate to a better location or expand to a new one.

Hiring more employees: Another great way to utilise a Working Capital Loan is to hire more people for the job. Hiring more employees can make operations efficient and expedite growth plans.

How to apply for Kinara’s Working Capital Loan?

To apply for a Working Capital Loan, applicants can check and compare various loan options that suit their business requirements on Kinara Capital’s website. Follow the steps mentioned below to apply for an Unsecured Working Capital Loan.

Step 1: MSME owners can check their eligibility for a Working Capital Loan on myKinara App or Kinara’s official website. 

Step 2: MSMEs are required to provide personal and business documents. After producing all the necessary details, the bank’s representative will contact them to proceed with loan formalities.

Step 3: Once the loan application is approved, the loan amount will be disbursed to the mentioned bank account within 24-hours.

Documents Requirement for a Working Capital Loan

Kinara’s minimal documentation allows you to substitute some documents in place of others, depending on availability. In order to apply for a Working Capital Loan at Kinara Capital, you will need the following documents:

  • The KYC document of the applicant (PAN Card)
  • The KYC documents of the co-applicant (PAN and Aadhaar). These documents are recommended but not mandatory.
  • Proof of business registration. This will include your Udyam Registration.
  • Submission of GST and ITR documents is optional
  • The bank statement for the previous 12 months


A Working Capital Loan can go a long way in helping MSMEs streamline their business finances and expand their business into newer products and services, domains and geographies. Reputable lenders like Kinara Capital offer customised loans for small businesses to help them expand or offset low sales and revenue generation cycles. So, if a small business doesn’t have extra cash in the bank, a Working Capital Loan can come in handy to scale up the business. 

Kinara Capital is one of the leading fintech companies in India that strives to support MSME entrepreneurs in their growth journey by providing collateral-free business loans. Registered MSMEs can acquire fast and flexible business loans from Kinara Capital to expand their business, purchase inventory, or any other business-related expenses. 

To apply for Kinara’s Working Capital Loan, MSMEs can check their loan eligibility within 1-minute in the myKinara App. It has 7 language options to choose from, and they can select your preferred vernacular. Clearing the eligibility criteria and uploading the minimum required documents on the fully secured portal, post verification of the document, the loan amount will be disbursed in the applicant’s bank account. Also, we have a dedicated customer support team available between Monday – Friday (9.30 AM – 6.00 PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.


  1. Who is eligible to apply for a Working Capital Loan from Kinara Capital?

Registered MSMEs that have been in manufacturing for 1+ years and trading or services sectors for 2+ years can apply for a Working Capital Loan at Kinara Capital. 

  1. What are the benefits of taking a Working Capital Loan from Kinara Capital?

Kinara provides collateral-free Working Capital Loans within 24-hours. We also offer doorstep customer service and support via phone in local languages. With our myKinara App, we have a three-step quick loan application process: 

  • 1-Minute Eligibility Check, 
  • Verification Process (KYC & Business Details),  
  • Loan Approval & Sanctioning will lead to automatic Disbursement of the loan.  
  1. Do I need to visit Kinara Branch to take a Business Loan?

No, you need not visit any branches. For support, you can contact us, and our Field Officer will visit you at your place of business to provide information and help you with the loan application process.  

  1. What are the Document Criteria for getting a Business Loan from Kinara Capital?
  • Business must be formally registered as an MSME in India 
  • MSME must be compliant with Local, State and National Laws and have any requisite certification 
  • MSME must have an Udyam Registration Number 
  • Applicant & Co-Applicant KYC 
  • Bank Statements, Customer Invoices, and Ledger may be reviewed 
  • GST Filings, if the business has a GST registration 
  1. Can I get a Business Loan without collateral?

Kinara Capital provides collateral-free business loans. This means that MSMEs will not have to submit any property documents while applying for a loan from Kinara.

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