My client is running a business of manufacturing ice ccreams, He has TO of 45L, can he get a OD facility of 10L ? What a bank will see to sanction the OD ? Its TO or Current ratio? or Working capital ?
15 May 2012
Banking revolves around 2 criteria. 01. Repayment Capacity and 02. Security. While computing repayment capacity bank will take into account good many number of ratios in addition to what you mentioned. Important would be Debt Service Coverage Ratio. Prima facie 20% of TO may be sanctioned as OD facility subject to ofcourse other conditions.
15 May 2012
If your client is enjoying TermLoan of Rs.45 lac with the bank, he can approach the same bank for working capital facilities. The WC facilities are in two forms - a) Cash Credit 2) WC Demand Loan - both are against hypothecation of stocks and inventory. The main creteria to extend this facility is the turnover - banks do process the limit to the extent of 20% of projected turn over of the next year. But this projected turnover should co-relate with the previous years turnover and should be justified with new plans etc. Ofcourse apart from the above if the limits are huge the bank may insist collateral security - mortgage of immovable property. The Banks do have their own working capital assessment forms - you ask your customer to approach his existing banker and you can prepare the data on his behalf to suit his working capital needs on justifiable grounds.
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