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
Sources of Working Capital Finance for a project –
Working capital Advances provided by commercial Banks
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%
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