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Credit line for a private limited company

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Consultant2b

Director

74 Points Posted on 03 April 2013

Sorry, if this question is slightly off topic but I guess the audience of this forum might be the right people to answer this query.

I was wondering, if someone could share their advice/experiences on what sort of factors large banks look at, when deciding whether to not to offer a credit line to a private limited company. Initially, we were told they would usually asked for the last 2-3 years audited statements. What sort of a chance does a company have to get a limit - with 1 years audited statements + 18months account history with the bank.

Also, how do they usually decide the amount of the limit?

Thanks

Replies (1)

CA Kedar Sakhardande

Proprietor

963 Points Posted on 03 April 2013

Hi it depends on bank to bank. but normally you should have at least 2 years of audited statement (tax audit is advisable) In case you are opting for working capital finance 1) the current ratio should be above the norm say 1.33 2) Turnover should be minimum 5 times of the limit proposed 3) capital ratio sould be 3:1 4) In case of debtors financing, Debtors should be not more than 120 days else the bank finance reduces 5) reputed clientle 6) Security Offerred (Primary + Collateral) 7) Order base (order copies etc etc.

In case of Term loan repayment capacity is also tested DSCR ratio should be at leaset 2:1 etc.

regards

kedar