MPBF Working Capital Calculator
The cash-credit limit a bank offers is not a negotiation about how much you would like. For most mid-sized borrowers it is the output of a formula — and you can run that formula yourself before the meeting.
Current assets
Current liabilities, other than bank borrowings
Lenders assess current assets at levels they consider reasonable for the business rather than accepting the balance sheet as filed, so slow-moving stock and overdue receivables are often trimmed during appraisal — which reduces the gap and the limit with it.
How this was calculated
Working capital gap = Current assets − Current liabilities (other than bank borrowings)
Method I: MPBF = Working capital gap − 25% of the gap
Method II: MPBF = 75% of Current assets − Current liabilities (other than bank borrowings)
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The Tandon Committee methods
The Tandon Committee laid down the approach still widely used for assessing working-capital limits. Under Method II, the borrower is expected to fund at least a quarter of current assets from long-term sources; the bank finances what remains of the working-capital gap. Method I is more generous, and Method II is the one more commonly applied to established borrowers above the small-limit threshold.
What counts as current assets here
Inventory, receivables and other current assets at the levels a lender considers reasonable for your business — not necessarily the levels in your balance sheet. Slow-moving stock and receivables well past their normal cycle are frequently trimmed during appraisal, which reduces the gap and therefore the limit.
Improving the number without borrowing more
The limit follows the operating cycle. Collecting faster, holding less stock, or negotiating longer credit from suppliers all change the gap directly. It is common for a business to be able to fund a growth plan out of its cycle rather than out of a bigger limit — and that is usually the cheaper answer.
Common questions
Products this calculator relates to
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