Margin money is one of the important factors, which is evaluated by financial institutions while considering the project for financial assistance.
The elements of cost of project are divided into tangible assets and non tangible assets to find out the margin money.
Tangible assets are those, which are physically present and whose cost can be allocated to either of the above heads.
It is only the escalation & contingencies, which is estimated and may give rise to some scope of error while evaluating margin money.
In the above scheme tangible assets constitutes 80% of the cost of the project and non-tangible items constitute 20% of the cost of project.
Normally the financial institutions do not finance the non tangible assets and it is to be financed by the promoter/ borrowing concern.
The tangible assets will be financed between 70 to 85% of the value of each item of asset. Suppose if the financial institution maintains a 2:1 debt equity ratio then the percentage of margin money is calculated by applying the following formula
Margin Money = Tangible assets – Term loans x 100
Tangible assets
Where Tangible Assets = Rs. 80 Lakhs.
Term loan = Rs. 60 Lakhs
= 80-60 x 100
60
= 17.5%
The elements of cost of project are divided into tangible assets and non tangible assets to find out the margin money.
Tangible assets are those, which are physically present and whose cost can be allocated to either of the above heads.
It is only the escalation & contingencies, which is estimated and may give rise to some scope of error while evaluating margin money.
In the above scheme tangible assets constitutes 80% of the cost of the project and non-tangible items constitute 20% of the cost of project.
Normally the financial institutions do not finance the non tangible assets and it is to be financed by the promoter/ borrowing concern.
The tangible assets will be financed between 70 to 85% of the value of each item of asset. Suppose if the financial institution maintains a 2:1 debt equity ratio then the percentage of margin money is calculated by applying the following formula
Margin Money = Tangible assets – Term loans x 100
Tangible assets
Where Tangible Assets = Rs. 80 Lakhs.
Term loan = Rs. 60 Lakhs
= 80-60 x 100
60
= 17.5%