# Working Capital Loan – Detailed Description
**What is a Working Capital Loan?**
A Working Capital Loan is a financial facility designed to meet the day-to-day operational requirements of a business, such as purchasing raw materials, maintaining inventory, managing supplier payments, meeting operating expenses, and maintaining a healthy cash flow.
**How is Working Capital Finance Calculated?**
Banks generally assess the working capital requirement based on the business's annual turnover, projected sales, financial statements, operating cycle, stock and debtors, creditors, existing borrowings, and banking performance.
Under certain turnover-based assessment methods, eligible working capital limits may be assessed with reference to approximately **25% of projected annual turnover**, with the borrower contributing a portion of the requirement from their own Net Working Capital. In some cases, the assessed bank finance may work out to approximately **15%–20% of turnover**, depending on the applicable assessment method and eligibility.
These percentages are indicative examples, not fixed entitlements. Actual finance depends on the bank's policy, financial assessment, and the borrower's repayment capacity.
**Key Financial Parameters Considered by Banks:**
- Annual Turnover and Sales Growth
- Audited Financial Statements and Provisional Financials
- Profitability and Cash Accruals
- Net Working Capital (NWC)
- Current Assets and Current Liabilities
- Stock and Book Debtors
- Creditor Days and Operating Cycle
- Existing Loans and Total Debt
- Banking Transactions and Account Conduct
- CIBIL / Credit History and Repayment Track Record
- GST Returns and Income Tax Returns
**Types of Working Capital Facilities:**
- Cash Credit (CC)
- Overdraft (OD)
- Working Capital Demand Loan (WCDL)
- Other fund-based and non-fund-based facilities, subject to eligibility
**Objective:** To provide adequate liquidity for smooth business operations, uninterrupted purchases, timely supplier payments, inventory management, and sustainable business growth.
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