Working Capital Requirements of a Project

It is essential to estimate the working capital requirements of a project to ensure smooth project implementation. In India Working capital finance for projects is provided according to the lending norms of the tandon committee. 

The working capital requirements of a project consists of –

• Raw materials and Components
• Stock of Work in Progress
• Stock of Finished Goods
• Debtors
• Operating Expenses

Sources of Working Capital Finance for a project  –

• Working capital Advances provided by commercial Banks
• Trade Credit
• Accruals and Provisions
• Long term sources of Finance

Limitations of Obtaining Working Capital Finance –

♦ The maximum permitted bank finance is computed on the basis of norms laid down by the Tandon Committee in its Lending Norms.

♦ A firm has to also provide certain margin money against its current assets in order to obtain working capital finance.

♦ Maximum permissible bank finance can be computed by the following –

♦ The margin requirements vary with the type of current asset –

• The margin money for Raw Material – 10% – 25% of cost of raw materials
• The margin money for Work In Progress – 20% – 40%
• The margin money for Finished Goods – 30% – 50%
• The margin money for Debtors – 30% – 50%