Working Capital


Working Capital knowledge base : Everything you need to know before proceeding.

What is Working Capital Loan?

Every business entity requires funds to purchase Fixed assets like Plant and Machinery, Land, Building etc. and some finance to meet their day to day requirements like to purchase raw material, pay salaries, electricity bills etc. The finance required to meet daily requirements is called working capital. Nowadays, banks are very aggressively providing funds to business houses to meet their working capital requirement and daily operational expenditure.

Collateral accepted for Working Capital Loans include:

  • Stock
  • Book Debts.
  • Additionally, banks may ask for some property (residential, commercial, industrial etc.)

Eligibility Criteria

  • • Annual turnover should be above Rs.1 Crore per annum
  • • Must be Sole Proprietorship, Partnership Firm, Private Ltd or Public Ltd Co., LLP
  • • Should not be listed in RBI Defaulter's List, CIBIL database, CRIL-C
  • • Minimum 2 years in same Business with positive Tangible Net Worth (TNW) and Profits After Tax (PAT)
  • • Satisfactory conduct with the existing Banker

Features:

  • • Can be secured or unsecured
  • • usually for a short duration of about 12 months
  • • Rate of Interest ranges between 11%-16% depending
  • • Reviewed annually

Types of Working Capital Loans

  1. Overdraft facility
    Based on the financial credentials of an enterprise, an overdraft facility is provided by the bank. Under this facility, the interest is charged only on the amount utilized/withdrawn and that too for the number of days/moths the amount has been overdrawn.
  2. Bank Guarantees
    This is a non-fund based facility wherein the bank gives an assurance to an individual/entity on the basis of their client that the contract entered between them will be executed by their client. In case, the client fails to honour the agreement, then the bank will make payment/compensate the entity to whom the assurance has been given, Bank charges commission from their clients for giving guarantee on their behalf.
  3. Letters of Credit
    This is also a non-fund as it does not involve the application of funds.
    A letter of credit is a form of bank guarantees that the seller will receive the amount of goods supplied on a particular date if the goods are delivered as per the agreement between the seller and buyer.
  4. Packing Credit (PC)
    This facility is offered to exporters to purchase/import, processing and packing of raw material/goods meant for export.
  5. Post Shipment Finance Post Shipment Credit is funding the export sales receivables, after the goods are shipped till the export payments are realized.
  6. Bill Discounting
    Once the goods are sold on credit, the bank purchases the bill (i.e. Bill of Exchange or Promissory Note duly accepted by the buyer) before its expiry and provides funds to the seller after deducting some margin. Upon the receipt of full payment from the buyer (the one who has given the acceptance to the bill), the Bank remits the initially kept margin money after making necessary deductions for the applicable interest and bank charges to the seller of the goods.
  7. Buyer’s Credit
    This is a very relevant mode of finance in International Trade. A loan facility is extended in foreign currency to an importer by a bank or financial institution to finance the import ofRaw material / Finished Goods / capital goods or services.

Rate of interest is very low as LIBOR (London Inter-Bank Offer Rate) linked pricing is offered in Buyers credit.

 

Entity

 

Sole Proprietorship

Partnership

Private Limited Company

 

Proprietor

Partner

Director

Individual Related Documents

Age & ID proof (any of the below): of Proprietor/Partner/Director

  • PAN Card
  • Passport
  • Drivers’ License
  • Aadhar Card

Yes

Yes

Yes

Residence Address Proof (any of the below): of Proprietor/Partner/Director

  • Passport
  • LIC Premium
  • Latest Utility Bill
  • Latest Mobile Bill

Yes

Yes

Yes

Photograph of Proprietor/Partner/Director
with Signature

Yes

Yes

Yes

Sanction letter and schedules/Statement of loans in the name of individuals/partners/directors

Yes

Yes

Yes

Residence/Office Ownership (any of the below):

  • Electricity Bill
  • Sales Deed Copy

Yes

Yes

Yes

Last 6 months bank statement of all operative accounts

Yes

Yes

Yes

In the case of transfer of a loan: Last 12 months of  loans statement  along with the Sanction Letter of your previous bank

Yes

Yes

Yes

Company Related Documents

Business continuity proof - 3 years income tax return & income  statement

Yes

Yes

Yes

Last3year audit report and audited financials

Yes

Yes

Yes

Business incorporation date proof - PAN Card

N.A.

Yes

Yes

Office Address proof (any one of the flowing):

  • Utility bill (Electricity)
  • VAT/Sales Tax/Service Tax Registration certificate

Yes

Yes

Yes

MOA(Memorandum of Association ) and AOA (Articles of Association)

N.A.

Yes

Yes

Latest share holding pattern on company letterhead

N.A.

Yes

Yes

List of current partners with share of profit on firm letterhead

N.A.

Yes

N.A.

Partnership Deed

N.A.

Yes

N.A.

Certificate of Registration

N.A.

Yes

Yes

List of Directors oncompany letterhead

N.A.

N.A.

Yes

Certificate of Incorporation

N.A.

N.A.

Yes