Working Capital Financing by Commercial Banks

The working capital financing by commercial banks is an important part of corporate finance. The small and medium scale businesses often face the requirements of credit for their business operations. The commercial banks offer special working capital financing services for the businesses.
Many a times the small and medium scale businesses fail to get the traditional loan from the banks. The businesses then need to go for the working capital financing from the banks. There are various forms of financing available for the working capital financing loans. The major categories of working capital financing by commercial banks are short-term loans, short-term credits, treasury lines and overdrafts.

The short term working capital financing are generally provided by the commercial banks over a short period of 3, 6, 9 or 12 months. The short term financing is addressed to deal with special purposes such as financing investments or financing the receivables. The commercial banks also offer short-term credit facilities that are generally used by the business on rotational basis in order to meet the general working capital financing requirement on a continuous basis.
In case of the short-term credit facilities, the loans are generally offered for the term periods of 1 or 3 months.
On the other hand, treasury lines are offered for non-standard tenors.

The commercial banks offer working capital financing services that are designed to suit the specific requirements of the businesses. The banks are backed with employees having sound knowledge in finance who are experienced to understand the needs of the business. These professionals also determine the criterion of the businesses and decide on the working capital cycle for the business. Generally, the working capital limits are valid for a specific time period and the loan is repayable on the demand.

With the working capital financing, the businesses can have loan against their income stream. This is considered to be the main facility of the working capital financing. The commercial banks can purchase the accounts receivables of the businesses and lend the credit on account of that. The commercial banks also offer working capital loans by acting as a lessee and holding the lease of business equipments.

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Last Updated on : 27th June 2013

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