Answer Posted / sana
Drawing Power is the amount of Working Capital funds the
borrower is allowed to draw from the Working Capital limit
allotted to him. Because the working capital limit is
usually allotted to a borrower against security of Stock and
Book Debts, the amount of funds a borrower is allowed to
draw is calculated by considering the total value of Stock
plus total value of Book Debts for the month after deducting
the margin. Margin is the component of funds raised from
long term sources such as Share Capital and Term Finance
(Long Term Loans). It is for this purpose that the borrower
must regularly submit Stock and Book Debts Statement and
Statement of Trade Creditors.
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