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
- 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%