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 –

  1. Raw materials and Components

  2. Stock of Work in Progress

  3. Stock of Finished Goods

  4. Debtors

  5. Operating Expenses

Sources of Working Capital Finance for a project  –

  1. Working capital Advances provided by commercial Banks

  2. Trade Credit

  3. Accruals and Provisions

  4. 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 –

Working capital requirements of a project

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

  1. The margin money for Raw Material – 10% – 25% of cost of raw materials

  2. The margin money for Work In Progress – 20% – 40%

  3. The margin money for Finished Goods – 30% – 50%

  4. The margin money for Debtors – 30% – 50%

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