Working Capital Loans
Any business whether big or small, struggling or efficient requires working capital the quantum of which depends on the strength of the business. What is working capital and why do business require it?
Net Working capital is defined as the excess of current assets over current liability excluding bank finance. Part of this NWC is funded by the promoters and the remaining is funded by working capital loan.
Just to make things clearer any asset on the balance sheet which could be converted into cash in one year or one operating cycle is classified as a current asset and any liability on the balance sheet which is repayable in a year or one operating cycle is classified as a current liability. For example short term bank deposit is a current asset and a working capital loan is a current liability.
Net Working Capital is mathematically defined as capital + long term loans – fixed assets – non current assets – intangibles. NWC is a measure of the promoters stake in day to day operations of the business and also gives an idea about diversion of funds by the unit.
During day to day operations of the unit some amount of funds get blocked in stocks, raw materials, semi finished goods, consumables and receivables. Working capital is the monetization of these current assets by taking a working capital loan against hypothecation of these assets.
Not all current assets can be hypothecated and working capital loan cannot be availed against all assets. The bank may provide working capital loan based on its assessment of the requirements of the unit. Working capital loan may carry a fixed or floating rate of interest and is generally repayable in one calendar year or one operating cycle. These loans may also be subjected to restrictive covenants if any by the bank as per its assessment like ceiling on market credit, ceiling in new investments and others.
Working capital is required by almost every company as many promoters are unwilling to reduce their stake in the company by bringing in equity infusion from new partners also the interest rate for working capital loans is generally less than the rate at which credit is available in the market.
A working capital loan enables a company to monetize its assets at a competitive rate and at the same time providing it with an avenue to increase its business. Though it has many advantages there are also some downsides for example generally all the current assets are hypothecated to the bank irrespective of the limit also the bank may impose certain conditions on the management in running the business which may interfere in day to day business decisions and in worst cases the bank may even takeover the management of the unit.
Licensed Moneylender in Bugis – Singa Credit Pte Ltd
Established in 1992 and previously known as Yong Seng Credit,
Singa Credit Pte Ltd is Licensed Moneylender in Bugis regularly updated with the latest regulations to be in line with the requirements set out by Registry of Moneylenders.
Please feel free to call 66946166 for more info on our lowest interest rate in Singapore or walk in our office 470 North Bridge Road #02-01 Bugis Cube Singapore 188735.