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Lalsar Capital · Question
Short answer
Start from the purpose, not the number you hope to receive. Split the need into spending that creates something lasting, such as machinery or a building, and spending that keeps the business turning, such as stock and receivables. Add a sensible cushion, subtract what you can fund yourself, and test whether future cash flow can repay the rest.
Most owners guess a round figure and then discover it either fails to cover the real need or burdens the business. A cleaner method works in four passes.
First, list the one-time spending. This covers equipment, civil work, deposits, licences, trial runs and the cost of getting the unit started. Ask suppliers and contractors for written quotations rather than using estimates from memory.
Second, estimate the ongoing need. Look at how long money stays locked between buying material and collecting from customers. That interval is your operating cycle. A longer cycle or faster growth means more cash is tied up in stock and receivables.
Third, subtract your own sources: savings, internal profits you can safely spare, and what the promoter will bring in. Lenders generally expect the owners to have a visible stake.
Fourth, test the balance against cash flow. Ask whether the business, in a modest rather than hopeful year, can pay interest and principal and still cover its own costs.
A garment maker adding a stitching unit
The owner lists machines and fit-out from quotations, then notes that fabric must be bought well before buyers pay. The extra stock and receivable days make up a second block of need. After subtracting owner funds, the remaining figure is checked against expected monthly surplus before any application is made.
Costs usually drift upward during execution. A modest contingency is sensible; an inflated one raises the cost of borrowing and makes lenders doubt the plan.
Do not size funding to the largest sanction available
Borrowing what a lender will offer, rather than what the plan needs, creates idle money and avoidable interest.
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This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.