Working Capital is basically the investment in current assets like raw materials, stores, semi-finished goods, finished goods, sundry debtors etc.
It represents the money that is required for purchase / stocking of raw materials, payment of salary, wages, power charges etc. and also for financing the interval between the supply of goods and the receipt of payment thereafter.
Working Capital Finance is extended in different forms basing on the requirement in the form of Inventory Limits (Pre-Sales), Finance against Receivables (Post-Sales), Non-Fund based limits and Short Term Lending products.
Working capital requirements of a unit would be assessed by adopting various methods like Turnover Method, Maximum Permissible Bank Finance (MPBF) System, Cash Budget System and Net Owned Funds System, depending on the type of activity.
The securities for working capital facilities per se would be as per general lending norms of the bank and also depends on the risk perception of the individual account.
Rate of interest on working capital finance depends on quantum of loan, nature of activity, purpose of loan, risk rating, financials etc.
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