Most limits are set once and never revisited, while the operating cycle quietly moves. The gap gets funded by expensive money.
A cash credit limit sanctioned three years ago was sized for a business that no longer exists. Turnover has grown, debtor days have stretched, and the difference is being funded by supplier credit, a personal loan, or an unsecured facility at a rate nobody wants to say out loud.
Start with the cycle, not the number
Your working capital requirement is a function of how long money stays locked up. Measure three things from your own books, not from sector averages:
- Inventory days — raw material, work in progress and finished goods
- Debtor days — the real figure, including the customers who always pay late
- Creditor days — how long your suppliers actually fund you
Inventory plus debtor days minus creditor days gives your operating cycle. Multiply your daily cost of sales by that cycle and you have the gross requirement.
Then justify the holding levels
This is where most assessments fall apart. A lender will not accept 90 days of raw material holding because you wrote it in a form. There has to be a reason — import lead time, seasonal procurement, a supplier who delivers monthly. Where the reason is weak, the holding level gets trimmed at appraisal and your limit shrinks with it.
Ask for what you can defend
A round-number request — "we need ₹2 crore" — invites a round-number reduction. An assessed requirement with each component justified gives the appraiser something to agree with. If your defensible requirement is ₹1.6 crore, asking for ₹2.5 crore does not increase your chances; it reduces your credibility on every other number in the file.
Renew properly
Annual renewal is not a formality. It is the one moment each year when the limit can be resized to the business you now have. Prepare for it the way you prepared for the original sanction, and use it.
A note on figures
Scheme parameters quoted in our articles are correct to the best of our knowledge at the date of publication and are revised by circular. Verify the current position before acting on anything you read here.