Vinu: Manu, in many small business loan proposals, audited financials aren't available. Can we assess working capital just using GST returns?

Manu: Definitely, Vinu. GST returns, especially GSTR-1 and GSTR-3B, give a good picture of monthly and annual sales. That gives us a solid starting point.

Vinu: So I check turnover first?

Manu: Yes. From GSTR-3B or GSTR-1, get the total annual turnover. Then estimate monthly average sales. For example, if it's Rs.1.2 crore per year, monthly is Rs.10 lakhs.

Vinu: Then how do I estimate the working capital requirement? 

Manu: First, discuss with the borrower to understand three things: 

 1. How long they hold inventory, 

 2. What credit period they give customers, and 

 3. What credit period they get from suppliers. 

 Let's say the borrower says: 

 - Inventory holding: 45 days 

 - Receivables: 30 days - Payables: 30 days 

 - Cost of Goods Sold is around 75% of sales. 

 Then: 

 - Monthly sales = Rs.10 lakhs -> COGS = Rs.7.5 lakhs 

 - Inventory = Rs.7.5 lakhs × 1.5 = Rs.11.25 lakhs 

 - Receivables = Rs.10 lakhs (1 month) 

 - Payables = Rs.7.5 lakhs (1 month) 

 So, Working Capital Requirement = Inventory + Receivables - Payables = Rs.11.25 + Rs.10 - Rs.7.5 = Rs.13.75 lakhs 

Vinu: Is this the loan amount we can sanction? 

Manu: Not yet. Now we apply the borrower's margin. Generally, banks ask for 25% margin on current assets. 

 So: 

 - Total Current Assets = Inventory + Receivables = Rs.11.25 + Rs.10 = Rs.21.25 lakhs 

 - Borrower's Margin = 25% of Rs.21.25 lakhs = Rs.5.31 lakhs (approx) 

 - Therefore, Eligible Bank Finance = Rs.21.25 - Rs.5.31 - Rs.7.5 (payables) = Rs.8.44 lakhs 

Vinu: So even though the working capital requirement was Rs.13.75 lakhs, the actual limit the bank would sanction is around Rs.8.44 lakhs after adjusting for margin and payables? 

Manu: Exactly. That's how banks assess working capital finance using GST returns and field-level inputs. 

Vinu: Very helpful, Manu. This approach is practical even for MSME proposals without formal books. 

Manu: That's the idea, Vinu. Use GST as a base, and build it with borrower discussions and logical estimates.

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