Working capital is the lifeblood of a business — it finances your day-to-day operations: buying stock, paying suppliers, funding debtors. For most businesses, bank working capital finance (Cash Credit, OD limit) is the most cost-effective source of short-term funds. But getting the right limit from the bank — and keeping it — requires a proper working capital assessment. This guide explains how it works and how to maximise your limit.
💡 Need working capital finance from a bank? Our CA team prepares CMA data, working capital assessment reports, stock statements, and debtor/creditor statements for bank submissions — helping businesses in Banda, Ghaziabad, Meerut, NCR, UP, and pan-India get the right limits. Send an Enquiry →
1. What is Working Capital Finance?
Working capital finance is short-term bank credit to fund the operating cycle of a business — from purchasing raw materials to collecting payment from customers. The operating cycle involves:
- Purchase of raw materials / goods (outflow)
- Processing/storage (locking up funds in stock)
- Sale on credit (funds locked in debtors)
- Collection of payment (inflow)
The gap between outflow and inflow is funded by working capital credit. Banks assess the size of this gap based on your turnover, inventory holding, and debtor/creditor cycle — and sanction a CC/OD limit accordingly.
2. Types of Working Capital Limits
| Facility | How It Works | Best For |
|---|---|---|
| Cash Credit (CC) | Running account against stock and debtors as security — draw and repay as needed | Trading and manufacturing businesses with high inventory |
| Overdraft (OD) | Overdraft against property or FD as collateral — flexible drawing | Service businesses, professionals, and firms with property |
| Invoice Discounting / Bill Discounting | Bank advances against your outstanding invoices/bills | Businesses with large B2B debtors and credit sales |
| LC (Letter of Credit) | Bank guarantees payment to supplier — for import or domestic purchases | Importers and businesses with large supplier payments |
| Bank Guarantee | Bank provides guarantee on your behalf — for tenders, performance, etc. | Contractors and businesses participating in government tenders |
3. MPBF — How Banks Calculate Your Working Capital Limit
Banks use the MPBF (Maximum Permissible Bank Finance) method to calculate the working capital limit. The standard method (Tandon Committee Method II, used by most banks):
- Total Current Assets (TCA): Projected inventory + debtors + advances to suppliers + other current assets
- Less: Other Current Liabilities (OCL): Trade creditors + advance from customers + other non-bank current liabilities
- Net Working Capital Gap = TCA − OCL
- Less: Minimum Promoter Margin (25% of TCA)
- MPBF = Net Working Capital Gap − Promoter Margin
The bank will sanction the lower of MPBF or the assessed need. Maintaining a Current Ratio of at least 1.33 is generally required — lower ratio suggests inadequate promoter margin.
Banks often sanction lower limits than your business actually needs — because the assessment is based on projections and supporting data. Our CA team prepares CMA data and working capital assessment that accurately reflects your business needs and maximises your eligible limit.
CMA Data Preparation →4. Documents Required for Working Capital Assessment
- CMA Data (Credit Monitoring Arrangement) — 3 years past financials + 2 years projections
- Audited financial statements for the last 3 years
- ITR filed for the last 3 years with computation
- GST returns (GSTR-3B) for the last 12 months
- Current stock statement (with item-wise details, quantity, value, date)
- Debtors and creditors ageing statement (30/60/90/120+ days)
- Bank account statements for the last 12 months
- Sanction letters for existing loans
- KYC documents of the business and promoters
5. Tips to Maximise Your Working Capital Limit
- Maintain healthy current ratio: Target current ratio > 1.33 — shows adequate promoter margin
- Show realistic but strong projections: Projections must be supported by historical trends and order pipeline
- Reconcile stock with GST/books: Banks cross-check your stock statement with GST purchase filings — inconsistencies reduce credibility
- Bank account activity: Maintain regular, business-like transactions through your current account — bank assesses utilisation patterns
- File ITR correctly: Your income shown in ITR must be consistent with the turnover and profitability in the CMA data — discrepancies raise red flags
- Reduce existing NPA risk: No cheque bounces, no overdrawn CC account beyond sanctioned limit, timely interest servicing
Working Capital Assessment & Bank Finance Advisory — Pan-India & Banda, UP
CMA data preparation, MPBF calculation, stock and debtor statements, bank liaison, and complete working capital limit assessment — our CA team helps businesses get the right bank finance. Serving businesses in Banda, Ghaziabad, Meerut, Bulandshahr, Noida, Delhi NCR, and across India.
Send an Enquiry →Disclaimer: This article is for general informational purposes only and does not constitute professional legal, tax, or financial advice. Laws and rules are subject to change. For advice specific to your situation, please consult a qualified Chartered Accountant.