How to Boost Your Current Ratio Before Applying for a Loan

For businesses in Chennai, whether you're a bustling textile exporter in Sowcarpet or an emerging tech startup in Tidel Park, securing the right business loan is crucial for growth. Lenders, when you apply for finance, investigate the well-being of your company, and, among all, the Current Ratio feature jumps out.

This ratio is a fundamental measure of your company's liquidity—its ability to cover short-term debts with short-term assets. Usually, a ratio of 1.5:1 or above is considered to be in good condition, whereby the banks are reassured that you give them less risk.

1. Accelerate Cash Inflow (Optimise Receivables)

In the Chennai business environment, the collection of cash without delay is the most important thing. The quicker your customers remit, the sooner your cash assets will increase.

• Offer Incentives for Early Payment: Give a small discount (e.g., 1-2%) to customers who pay invoices within 7 or 15 days.
• Simplify the Process of Invoicing: Make the invoice right after the product is sold or the service is provided.
• Create Solid Follow-up with Customers: Establish a regular and polite follow-up system for overdue accounts.

2. Strategically Manage Inventory and Assets

An overstock of goods means your money is tied up and is therefore not liquid. Turn the slow-moving assets into money that will be used to increase your current assets.

• Sell Off Slow-Moving Stock: Work hard to get rid of old inventory by giving discounts. As a result, the company's cash (current asset) will increase.
• Get rid of unused equipment: Locate and sell the machinery or office equipment that is unused and therefore costing you money.

3. Restructure Short-Term Liabilities

There will be a good immediate impact on the current ratio if the denominator in the current ratio equation is reduced.

• Remove the Burden of Short-Term Debt: Use money raised from asset sales or receivables improvement to pay off expensive short-term borrowings or accounts payable.
• Turn Short-Term Debt into Long-Term Debt: Talk to a financial advisor and get a loan that you can pay over a long time to refinance a part of your short-term debt.

Partner with Chennai's Best: Ambit Crest

Getting your current ratio up is necessary, but it is only your first step. Ambit Crest, situated in Chennai, has the knowledge about the local market, the Tamil Nadu lenders' needs, and also different kinds of loans. We don't only facilitate applications, but we also work closely with you to make sure your current ratio is the best possible.

From the very first financial assessment to documentation and final disbursement, our experienced team provides personalised, region-based advice to make your loan journey seamless.