WORKING CAPITAL
A working capital loan is money borrowed to finance the day-to-day operations of the business. This includes fixed, regular expenses such as rent for the factory shed and office, salaries and wages, office expenses, security costs, etc. A working capital loan is not usually used to buy assets or to make investments. However, there are no restrictions on how you use a working capital loan once it is sanctioned to you.
To make the best use of a working capital loan, read the answers to the frequently asked questions.
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Frequently asked questions
Working Capital
What is Cash Credit?
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WC GAP = (Stock + Debtor - Creditor) -
DRAWING POWER = (Stock + Debtor - Creditor) * 70%
Features of Cash Credit
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BUSINESS VINTAGE : minimum 3 Years
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LOAN AMOUNT : 10 Lakhs and above
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TENURE : 1 year, renewable
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TURNOVER REQD. : minimum Rs. 50 Lakhs
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RATE OF INTEREST : 9% to 12%
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CREDIT SCORE : minimum 650
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DRAWING POWER : 70% as per WC GAP calculation
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LTV / COLLATERAL : 70% to 150%
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PRIMARY SECURITY : stock and book debts
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PROCESSING FEE : 1%
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INSURANCE : depends on the property
What is Overdraft Facility (OD) ?
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OD account stands for Overdraft account. It is a type of account in which you can withdraw amount even if there is no fund in your account.
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The bank sanctions a specific limit and your account can go in negative up to that limit. The client has to pay interest only on the amount withdrawn as loan.
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Since it is a current account, you can make as many transaction as you want. You have to pay interest on the amount which is due by the end of the day.
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OD facility is extended to a client wherever there are calculation or WC GAP shortfall. To mitigate the fund requirement, OD facility is extended.
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It is an advance given by a bank for day to day expenses against Collateral Security, FD, LIC, NSC, KVP.
Features of Overdraft Facility.
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BUSINESS VINTAGE : minimum 3 Years
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LOAN AMOUNT : 10 Lakhs and above
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TENURE : 1 year, renewable
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TURNOVER REQD. : minimum Rs. 50 Lakhs
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RATE OF INTEREST : 9% to 12%
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CREDIT SCORE : minimum 650
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LTV : 70% to 90%
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PROCESSING FEE : 1%
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INSURANCE : depends on the property
What is Letter of Credit (LC) ?
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LC at Sight -
Usance LC -
Standby LC
Features of Letter of Credit Facility
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BUSINESS VINTAGE : minimum 3 Years
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LOAN AMOUNT : 10 Lakhs and above
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TENURE : 1 year, renewable
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TURNOVER REQD. : minimum Rs. 50 Lakhs
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ROI / CHARGES : 2% to 1%
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CREDIT SCORE : minimum 650
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ELIGIBILITY : depending on the purchase credit terms
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LTV : as per WC assessment
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MARGIN : 25% to 10%
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PROCESSING FEE : 1%
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INSURANCE : depends on the property
What is Bank Guarantee (BG) ?
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Financial Guarantee -
Performance Guarantee
Features of Bank Guarantee Facility.
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BUSINESS VINTAGE : minimum 3 Years
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GUARANTEE AMOUNT : 10 Lakhs and above
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TENURE : 1 year, renewable
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TURNOVER REQD. : minimum Rs. 50 Lakhs
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ROI / CHARGES : 2% to 1%
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CREDIT SCORE : minimum 650
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ELIGIBILITY : depending on the requirement and end-use tenure
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LTV : as per WC assessment
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MARGIN : 25% TO 10%
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PROCESSING FEE : 1%
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INSURANCE : depends on the property
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