Case Study 4
Lack of collateral stopping the growth of an Electrical products Manufacturing company
Executed Successfully in August 2024
Company Background:
The client is into manufacturing of Electrical switches, LED Lights and other ancillary products based out of Mumbai. The company had grown from a turnover of 30cr to 100cr over 2 years but the working capital limits were only 13cr against a business requirement of 30cr.
The existing bank was not willing to increase their limits since they wanted more collateral and the promoters of the company had already pledged their factory and office worth 10cr and were not willing to offer their residential properties as collateral for the business.
Requirement:
The total funding required was of 30cr out of which around 8cr was required for equipment purchase to increase the manufacturing capacity and a Working capital limit of 22cr to be able to reach a turnover of 120cr. The only collateral available was the Factory located at Vasai worth 8.5cr and an office in Malad valued at 1.5cr.
Capstone’s Solution:
We realized that no new bank would be able to give 30cr on a collateral of 10cr. Hence, we divided the requirement into 2 parts: 8cr for Equipment purchase required for 2-3 years and 22cr for working capital in the form of a Cash Credit Limit. We approached a nationalized bank and got a sanction of 22cr against the Land and Building located at Vasai and the office premises located at Vasai. This took care of the working capital requirement of the company.
Additionally, we got a sanction of Rs. 8cr for a 3 year term loan under MSME without requiring any collateral. Totally, the company was successfully given a funding of Rs. 30cr without requiring any additional collateral. Today, the client is on track to touch a total turnover of Rs. 130cr, which would be the highest turnover the company has achieved in their 15 year history.
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22cr working capital was arranged against a 10cr collateral, effectively giving the bank finance at 45% collateral. This too was done from a nationalized bank allowing the company to further enhance their limits as their turnover would grow, without requiring any further collateral.
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8cr was given without any collateral for a 3 year period, this the total collateral cover of 10cr allowed them to get a total funding of 300% of the market value of properties offered, something usually not possible in the banking system in India
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The tenure of the MSME loans was matched with the tenure required for the equipments, this making sure the company is not overburdened with repayment
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The transaction was done in 2 phases over 2 months giving the company a smooth transition from the old bank to the new bank.
