Should the bank fund a growing supplier?
Credit underwriting · 15 min · Fictional interview case
The situation
A supplier has just won a large order. Its customer pays after 60 days, but wages and raw material bills arrive sooner. The owner asks the bank for a temporary credit line to fill the gap.
Assess the size of the short-term gap and whether the borrower can carry the extra debt cost in a weak year. The bank uses a minimum coverage of 1.25×.
- Cash available / bills due before collection
- ₹4 crore / ₹7 crore
- Annual cash for debt service
- ₹18 crore base / ₹14 crore downside
- Annual debt service
- ₹10 crore existing; add ₹2 crore if requested line is approved
Your task
How much liquidity is needed and does the proposed facility satisfy the downside coverage requirement?
Reveal step-by-step solution
Find the timing gap
Bills of ₹7 crore less available cash of ₹4 crore leave a ₹3 crore shortfall before collection.
Stress annual coverage
After the new facility, debt service is ₹12 crore. Base coverage is 1.50×. Downside coverage is ₹14 ÷ ₹12 ≈ 1.17×.
Make a credit decision
The proposal fails the downside test. Discuss a lower-cost or differently structured line, tied to verified invoices, and test it again.
Interviewer follow-up
What maximum additional annual debt service could the borrower support in the downside?
Compare your answer
₹14 crore ÷ 1.25 = ₹11.2 crore total allowed service. Subtract ₹10 crore existing service to leave ₹1.2 crore.