Working capital loans are provided for financing everyday operations of a company and used to cover or build-up current assets like inventory, stock-in-trade, accounts receivables, etc., Companies that have high seasonality or cyclical sales cycles usually rely on working capital loans to help with periods of reduced business activity.
Various types of bank facilities fall under working capital facility. Some of the types of working capital facilities are cash credit, overdraft, and letter of credit, bank guarantee, packing credit, post shipment finance and bill discounting.
Working capital loan is sanctioned by Banks for working capital purposes like holding of inventory, receivables and build-up of other current assets in a business. Working capital facilities are renewable every year.