How Banks Actually Assess Your Working Capital Limit

Most borrowers see their working-capital limit as a negotiation. Inside the bank, it is arithmetic. Understanding that arithmetic is the fastest way to a better limit.

For smaller limits, banks commonly use the turnover method. In its conventional form, working capital requirement is taken as a quarter of projected annual turnover, the bank funds the larger part of that and you bring the remainder as margin. Treat those proportions as the shape of the calculation rather than a fixed rule: the turnover threshold at which this method applies, and the exact percentages, are set by each bank's own credit policy and have been revised over the years. What does not change is that your projected turnover has to be defensible from GST returns and past trends.

For larger limits, the Maximum Permissible Bank Finance (MPBF) method takes over: the bank funds the working-capital gap after your margin, driven by holding norms for inventory, debtors and creditors. Inflated debtors or slow-moving stock reduce eligibility directly.

The lesson: the limit you get is decided by the quality of your CMA data long before it reaches a sanctioning authority. Prepare it like the bank will read it — because they will.