Caps on Working Capital Loans

As per the order published in domestic news outlets on Monday, the maximum working capital loan banks can give to functioning commercial, services and contracting companies will henceforth not exceed 60% of the annual sales of the company in three years as reported in the financial statements of the company.

The ceiling for non-operating commercial, services and contracting companies is 60% of sales forecast in the first year of operation.

Maximum working capital loan for active manufacturing units would be the equivalent of 90% of their sales in the preceding year.

Regarding manufactures that have implemented expansion plans and nonoperational manufacturing units, the working capital loan cap is 90% of the company’s sales forecast in the first year of operation.       

Likewise, maximum working capital loan to new production units in the first year of establishment will be 90% of their annual sales forecast.

Most loans given by banks is usually for boosting working capital. CBI data show lenders paid 12,410.8 trillion rials ($45.5 billion) in loans and credits in the first half of current fiscal year (March 21- Sept 22).  

Numbers releases show businesses took out 8,376.7 trillion rials ($30.6b) in loans to boost working capital accounting for 67.5% of the total.

The CBI said the substantial rise in lending is a sign that lenders are giving priority to raising working capital for businesses under the difficult economic environment.

It also reflects lenders’ concerns about the viability and solvency of manufactures struggling, among other things, due to the increasing economic challenges.