How to use Chit funds as a working capital tool
Chit funds have been around for a long time and are often considered one of the oldest forms of money-lending in India. They are a simple method for people to pool their money together and lend it to one another at a low rate of interest. Chit funds are managed by a group of people who come together for a particular purpose. These people can be friends, family members or employees of a company. The group plans to collect a fixed amount of money each month from every member and the total sum is then given to one of the members as a loan. The process repeats for several months until all members have received their loan.
Nowadays, chit funds have become a popular form of working capital financing. As a small business owner, you may find chit funds a useful tool to obtain working capital. Here’s how you can use chit funds as a working capital tool:
Join a chit fund group
The first step is to join a chit fund group. You can either join an existing group or create your own. Look for reliable chit funds that have a good track record and are registered with the government.
Contribute regular payments
Once you join a chit fund group, you need to make regular contributions. The contributions should be made on a monthly basis. You can decide on the amount of contribution based on your business needs.
Bid on the loan amount
At every monthly meeting, a loan amount is decided which is granted to one of the members. If you have a need for working capital, you can bid on the loan amount. The highest bidder gets the loan amount for that month.
Use the loan for working capital
Once you have received the loan amount, you can use it for your business’s working capital needs. This can include purchasing inventory, paying salaries or investing in new equipment.
Repay the loan
You will need to repay the loan along with the interest over a fixed period of time. The interest rate for chit funds is usually lower than that of traditional banks.
In conclusion, chit funds can be an excellent tool for small business owners to obtain working capital financing. It is important to do your research and find a reliable chit fund group to ensure you receive the necessary funds for your business needs. Remember to repay the loan on time, as failure to do so can impact your credibility and access to funds in the future.
