There are certain policies that must be followed while calculating and managing working capital. The most commonly followed working capital policies are:
1. Aggressive Policy
This policy, as the name suggests, is a high-risk one. Owing to the risk factors, returns are also higher. To follow this, a business must minimise its current assets or the amount of debt its owed to.
Here, there are no debtors- payments are collected in time and are eventually invested in business. Creditors’ payments are delayed to the maximum. Doing so, sometimes might land up with possibilities to sell out company assets to clear debts.
This type of working capital policy is mostly followed by companies looking for brisk growth.
2. Conservative policy
Businesses with low-risk appetite are mostly inclined towards such a policy. In this policy, credit limits are pre-set to a specific amount. Also, such policies refrain doing business on credit with any debtor who defaults.
Generally, a conservative working capital policy is followed to keep the company assets and liabilities in sync with each other, with the assets value on the higher side, in case of sudden exigencies.
3. Matching policy
This one is a hybrid between a working capital management policy and a working capital financing policy.
Businesses generally follow this policy when they want their working capital to be less; thereby utilizing or investing the money elsewhere.
Here, the current assets of the balance sheet are matched with the current liabilities and less cash is kept in hand. This in turn, enables the rest of the finance to be used for expanding business, increasing production scale, etc.
A sound working capital financing policy enables a firm to select a working capital loan as per its needs.
MSME stands for Micro, Small and Medium Enterprise. It was introduced by the Government of India in agreement with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. As per this act, MSMEs are the enterprises involved in the production, processing or preservation of goods and commodities. Vital for economic growth, this sector contributes around one-third of the country’s GDP and generates employment for around 110 million of the population.
It also plays an important role in the socio-economic development of the country as many of these enterprises operate in rural India. According to the Government's annual report of 2018-2019, more than 6 lakh MSMEs operate in the country.
Initially, MSMEs were classified based on two factors - investment in plant/machinery and an annual turnover of the enterprises. However, the Ministry of Micro, Small and Medium Enterprises has recently revised the classification by combining these two factors into a single criterion.
The MUDRA loan is provided under the Pradhan Mantri MUDRA Yojana (PMMY) to non-farming and non-corporate micro and small enterprises. These enterprises can avail loans up to Rs.10 lakh under the MUDRA (Micro Units Development & Refinance Agency Ltd.) scheme.
We have discontinued this product (MUDRA Loan) at this time. Please reach out to us on +91-8698010101 to know more about the current financial services provided by us.
|Loan amount under Shishu||Up to Rs.50,000|
|Loan amount under Tarun||Rs.50,001 to Rs.500,000|
|Loan amount under Kishore||Rs.500,001 to Rs.10,00,000|
|Processing fees||0.5% for Tarun Loan, nil for others|
|Eligibility criteria||New and Existing Units|
|Repayment period||3-5 Years|
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