BANK OVERDRAFT

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 November 2009 I WANT TO APPLY FOR OD LIMIT WITH A BANK FOR A NEW COMPANY. I WILL HAVE TO GIVE PROJECTIONS FOR 4 YEARS P/L, B/S, FUNDLOW, CMA ETC. OUR REQUIREMENT IS 5 CRORE FUND BASED & 3 CRORE NON FUND BASED

I WANT TO KNOW IN THE PROJECTIONS SHOULD 5 CRORE BE CONSIDERED AS LAON FROM BANK OR NOT ?

PLEASE GIVE DETAILED REPLY

Madhusudan Bohra

Madhusudan Bohra (Expert)
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22 November 2009 Fund Based Limits:
Requirement of Fund based finance comes from your P&L and cash flow projections, which give details about your sales projection, your cost of sales, Admin exp., depreciation, finance cost, debtors, creditors etc.

Based on above projection and based on the nature of business, we need to determine the funded facility requirement which may be a overdraft limit, short term loan, bill discounting, project financing etc.

Non Fund based limits:
Similarly we need to see business requirements to see what extent we need non funded financing. In case company works on big project and need to give bid bonds, advance/ performance guarantee. OR if a company needs to open letters of credit infavour of its suppliers.

Now coming to your query, in your projections you need to show Rs. 5 Crores as your fund based finance requirements and it can have sub limits in form of overdraft, short term loan,bill discounting, project financing etc.

How the above clarifies your doubts.

Querist : Anonymous

Querist : Anonymous (Querist)

22 November 2009 THANKS MADHUSUDAN.

SO YOU MEAN TO SAY THAT 5 CRORE SHOULD BE TAKEN IN FUND FLOW, BALANCE SHEET ETC. I PLAN TO TAKE ONLY BANK O/D SO SHOULD I SHOW 2 CR IN 1ST YEAR, 3 CR IN SECOND YEAR OR 5 CR IN ONE SHOT.

MOST IMPORTANT HOW DOES THE BANK CALCULATE THE ELIGIBILITY WHETHER IT IS 2 CR OR 5 CR

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Madhusudan Bohra

Madhusudan Bohra (Expert)
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22 November 2009 Accounting will depend upon utilisation of the facility.

If you are availing Rs. 2 Cr. O/D in first year and assumed that not repaid, needs to be shown under bank balances in Balance sheet.

If some amount is repaid back, then only the balance portion will appear in B/S.

In case you are taking short term loan then this needs to be classified under Current liability.

Banks will determine elegibility based on past track record, profits, interest cover ratio, repayment capacity etc.
During 1st year, while preparing your fund float statement, Balance sheet show the O/D amount in Balance Sheet and in