Project Finance vs. Working Capital

Applying for the incorrect debt vehicle is one of the most common causes of corporate insolvency among expanding Indian mid-market enterprises. Mismatching short-term cash credit to fund long-term factory construction inevitably creates immediate debt-service shortfalls before the new unit generates operating revenue.

Working Capital: Short-Term Operational Liquidity

Working capital facilities (Cash Credit, Overdrafts, Vendor Financing) are revolving instruments engineered exclusively to sustain ongoing operational cycles—covering raw material procurement, payroll, overheads, and trade receivables. They operate on short review tenors (typically 12 months renewable) linked to dynamic drawing power.

• Purpose: Smoothing out inventory-to-cash conversion cycles.
• Security: Hypothecation of current assets (stock and receivables).
• Tenor: Revolving with annual institutional review.

Project Finance: Long-Term Capex Structuring

Project finance is structured for major greenfield industrial setups, infrastructure expansion, and large-scale manufacturing installations. Debt service is sustained directly by the projected future cash flows of the standalone economic unit, featuring extended repayment tenors (5 to 15 years) and custom moratorium grace periods during the project construction phase.

• Purpose: Greenfield industrial plants, infrastructure development, real estate.
• Security: Project assets, concession rights, and escrow waterfall accounts.
• Tenor: 5 to 15+ years with tailored principal moratoriums.