By Suresh Chandra Bose ·
The most common structural mistake we see in MSME balance sheets is term debt funding inventory — repayments fixed, but the asset cycles every 60 days. The reverse mistake, funding machinery on an overdraft, is just as damaging.
The test is your cash conversion cycle: days inventory plus days receivable minus days payable. Money locked inside that cycle is working capital and belongs on a revolving line where you pay interest only on utilisation.
Money that creates capacity — machinery, premises, long-gestation expansion — belongs in term debt, with the repayment schedule matched to the asset’s earning life and a moratorium covering installation.
Blending the two hides risk. A dedicated working-capital line also builds the banking behaviour lenders read when you next ask for enhancement.
If your limits were set years ago, a GST-based reassessment usually justifies an enhancement — turnover-linked programmes now sanction against filed returns rather than audited financials. Our MSME desk can model both structures against your actual cash flows before you commit.