Working Capital Loan

Any business whether big or small, struggling or efficient requires working capitals the
quantum of which depends on the strength of the business. What is working capital and why
do business require it?

Net Working capitals 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 Singapore – Singa Credit Pte Ltd

Established in 1992 and previously known as Yong Seng Credit,
Singa Credit Pte Ltd is Licensed Moneylender in Singapore 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.