Bank Credit As a source Of Meeting Working Capital Requirements:
While Bank Credit is considered as a major source of meeting the working capital requirements of the industry the banks have to consider the following factors before meeting their requirements.
(a) What should be the amount of working capital assistance ?
(b) What should be the form in which working capital assistance may be extended?
(c) What should be the security that should be obtained for extending the working capital assistance?
(A) Amount of assistance
To obtain the bank credit for meeting the working capital requirements, the company will be required to estimate to working capital requirements and will be required to approach the bank along the necessary supporting data. On the basis of the estimates submitted by the company, The bank may decide the amount of assistance which may be extended, after considering the margin requirements. This margin is to provide the cushion against the reduction in the value of security.If the company fails to fulfil its obligations, the bank may be required to realize the security for recovering the dues.Margin money is meant to take care of the possible reduction in the value of security.The percentage of margin money may depend upon the credit standing of the company,flctuations in the price of security or the directives of Reserve bank of India from time to time.
(B)form of assistance
After deciding the amount of overall assistance to be extended to the company, the bank can disburse amount in any of the following forms-
(a)Non-fund based lending
(b)Fund based lending
While Bank Credit is considered as a major source of meeting the working capital requirements of the industry the banks have to consider the following factors before meeting their requirements.
(a) What should be the amount of working capital assistance ?
(b) What should be the form in which working capital assistance may be extended?
(c) What should be the security that should be obtained for extending the working capital assistance?
(A) Amount of assistance
To obtain the bank credit for meeting the working capital requirements, the company will be required to estimate to working capital requirements and will be required to approach the bank along the necessary supporting data. On the basis of the estimates submitted by the company, The bank may decide the amount of assistance which may be extended, after considering the margin requirements. This margin is to provide the cushion against the reduction in the value of security.If the company fails to fulfil its obligations, the bank may be required to realize the security for recovering the dues.Margin money is meant to take care of the possible reduction in the value of security.The percentage of margin money may depend upon the credit standing of the company,flctuations in the price of security or the directives of Reserve bank of India from time to time.
(B)form of assistance
After deciding the amount of overall assistance to be extended to the company, the bank can disburse amount in any of the following forms-
(a)Non-fund based lending
(b)Fund based lending