A trader borrows to hold stock and to wait for buyers. That means the file is read in two parts — how fast your stock turns, and how reliably the people who owe you actually pay.
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The moment you start selling on credit, someone else's ability to pay becomes part of your loan application. Underwriters read a trader's file in two halves: how fast the stock moves, and how reliably the people who owe you actually settle.
Expect to produce a debtor ageing statement — who owes you, how much, and how overdue. Two things in it matter more than the total.
Concentration. ₹40 lakh owed by thirty buyers is a materially better file than the same ₹40 lakh owed by two. In the first case one default is an inconvenience; in the second it takes out most of your working capital, and the lender with it.
Ageing. Receivables past ninety days are discounted heavily and sometimes disregarded entirely. A book that looks healthy at ₹40 lakh but has ₹15 lakh sitting beyond ninety days is really a ₹25 lakh book, and that is how it will be treated.
Prepare the statement before you apply rather than producing it under pressure. If a large overdue balance has a genuine explanation — a disputed consignment, a buyer on an agreed longer cycle — say so in writing alongside it.
The requirement comes out of your own cycle: stock days + debtor days − creditor days, multiplied by daily sales. Full working with an example is on the working capital page, and taking those workings to a lender is far more persuasive than asking for a round figure.
Note the third term. Creditor days work in your favour — every day your suppliers give you is a day you do not need to borrow for. A trader who pays suppliers in fifteen days while giving buyers forty-five is financing a thirty-day gap that better supplier terms might have removed.
Cash credit is drawn against current assets — stock and book debts — with the drawing power reset from a periodic stock statement. That structure matches how a trading business actually consumes money: heavily before a season, lightly after it.
Two obligations come with it. File the stock statement on time, every period; late statements are among the most common reasons a limit gets frozen. And keep the limit fluctuating rather than pinned at the ceiling — a permanently drawn limit reads as a term loan in disguise and invites reduction at annual review.
Slow-moving stock is not the asset the balance sheet says it is
Drawing power is calculated on stock the lender believes it could realise. Goods that have not moved in a year get discounted or excluded, however they are valued in your books. Traders are sometimes surprised when a ₹60 lakh inventory supports a much smaller limit — the difference is almost always dead stock. Clearing it, even at a loss, often improves both the limit and the business.
First, under the MSMED Act a buyer who does not pay a registered micro or small enterprise within 45 days is liable for compound interest at three times the RBI bank rate, pursuable through the Samadhaan portal. Most traders never invoke it against a buyer they depend on, which is a commercial judgement — but it is worth knowing before borrowing expensively to cover a delay.
Second, if your buyers are large companies, invoice discounting may be cheaper than a limit of your own, because it is priced against their credit rather than yours. Check whether they are on TReDS.
Q1. What loan suits a trading business best?
Cash credit or an overdraft in most cases, because the need recurs with each stock cycle and you pay interest only on what is drawn. A term loan suits a one-off — a godown, a delivery vehicle, a second location.
Q2. Can traders register under Udyam?
Yes. Retail and wholesale trade are included for priority sector lending purposes. Registration is free and opens CGTMSE cover, so there is no reason to skip it.
Q3. How is drawing power calculated?
From your stock statement and debtor list, with a margin applied to each. Slow-moving stock and receivables beyond ninety days are discounted or excluded, so drawing power is usually well below the book value of your current assets.
Q4. One buyer is most of my sales. Does that hurt?
Yes, it is read as concentration risk. It does not disqualify you, but expect questions about that buyer and possibly a smaller limit. If the buyer is large and well-rated, invoice discounting can turn that concentration into an advantage instead.
Q5. Do I need to file stock statements every month?
For a cash credit facility, usually yes, and on time. It is the mechanism that sets your drawing power, and late filing is one of the most common reasons a limit is frozen or reduced.
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