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How is the amount of assistance that a bank can provide for your working capital calculated?
Working capital assistance is provided by the bank in order to bridge the gap between current assets and current liabilities, which can be fund based and non-fund based. In order to obtain credit from bank for meeting working capital requirements, the company need to estimate its working capital requirements and is required to approach the bank along the necessary supporting documents. On the basis of the documents, the bank will decide the amount of assistance which may be given to the company after considering the margin requirements. This margin money provides the cushion against the reduction in the value of the security. If the company fails to fulfill its obligations then the bank may realize the security for recovering dues from the company. The percentage of margin money depends upon the credit standing of the company, fluctuations in the price of security or the directives of Reserve bank of India.
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