Vinu: Manu, I’ve heard that some companies get working capital loans without offering any security. Is that really possible? Under what criteria can banks give unsecured working capital loans?

Manu: Yes, Vinu, it’s possible. But banks are very selective. They offer unsecured working capital loans only when the borrower meets certain stringent conditions. Let me walk you through them.

Vinu: Okay, start with the first one.

Manu: Sure. First is the financial strength of the company. The borrower must have a track record of consistent profitability, sound net worth, and positive operating cash flows. Banks need to feel confident that the company can repay without collateral.

Vinu: But what about DSCR? Is that a key factor?

Manu: Not necessarily, Vinu. DSCR is more relevant for term loans, especially long-term ones. In the case of working capital loans, banks focus more on the cash conversion cycle, liquidity, and account conduct. What they really want to see is whether the business is generating enough operating inflows to cover day-to-day needs.

Vinu: That makes sense. What else do they consider?

Manu: Second is the credit rating. If the company has a good internal or external rating, say investment grade or above (BBB+ or higher), it strengthens their case. Many banks use rating-linked grids to approve unsecured limits.

Vinu: What about the promoters? Does their background matter?

Manu: Absolutely. If the promoters have high net worth, clean credit history, and if the company is backed by a well-known corporate group, banks are more comfortable. Sometimes, even a letter of comfort or undertaking from the parent company is enough.

Vinu: Do past dealings with the bank matter?

Manu: Yes. Banks give weight to a long-standing, clean banking relationship. If the company has maintained good account conduct, timely repayments, and optimal limit utilization, the bank sees them as reliable.

Vinu: Will the purpose of the loan affect the decision?

Manu: Definitely. The bank will approve the loan only if the purpose is genuine working capital use — like paying suppliers, purchasing raw material, or managing payroll. They usually seek an end-use undertaking too.

Vinu: Are there any restrictions on the loan amount?

Manu: Yes, most banks have internal policies that cap unsecured exposures, especially for working capital. The amount usually ranges from ₹50 lakhs to ₹10 crores depending on the company’s profile and bank’s risk appetite.

Vinu: What about the interest rate?

Manu: Since it's unsecured, the interest rate is typically higher than secured working capital loans. It’s risk-based pricing. Banks may also charge processing fees or insist on credit insurance.

Vinu: And how long is the loan usually given for?

Manu: Unsecured working capital loans are generally for short tenures, often 6 to 12 months, and renewed after periodic reviews.

Vinu: Final question — who approves these loans?

Manu: Such proposals usually go through higher-level credit committees in the bank. If the loan is of significant value or involves exceptions to normal policy, it may even need board-level approval.

Vinu: Thanks, Manu. That was very insightful!

Manu: Always happy to help, Vinu. Just remember, unsecured loans are granted more on trust, credit strength, and reputation — not just numbers.

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