What is the limit of loan which a Board of Director can take from bank other than purpose of working capital?
The limit is set within the criteria agreed to by the bank and company. The value of the company would be one set criteria as well as the receivables as long as they are not aged beyond the purchasing agreement of established criteria. Companies can also borrow based on their inventories which would be considered value. Working capital is only one facet that a company may need to borrow for, if cash flow is an issue they may need to borrow for paying of suppliers and payroll until receivables are in.
There are many other covenants that companies and banks would look at such as debt to equity ratio and return on net assets employed. so the limit is really depending on what agreement they have with the bank. |
