Working Capital Facility Agreement for India

Working Capital Facility Agreement Template for India

A Working Capital Facility Agreement is a crucial financing document governed by Indian law that establishes the terms and conditions under which a bank or financial institution provides short-term funding to meet a company's operational needs. The agreement comprehensively covers facility limits, drawdown mechanisms, interest calculations, security arrangements, borrower covenants, and default provisions, all while ensuring compliance with Indian banking regulations, RBI guidelines, and relevant statutory requirements. It incorporates specific provisions for the Indian context, including stamp duty compliance and local security creation requirements.

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What is a Working Capital Facility Agreement?

The Working Capital Facility Agreement is a fundamental financing document used when businesses in India require short-term funding for their day-to-day operations. It's particularly crucial for companies seeking to finance their working capital cycle, including inventory, receivables, and operational expenses. The agreement must comply with Indian banking regulations, particularly RBI guidelines, and typically includes provisions for facility limits, drawdown mechanisms, security arrangements, and borrower obligations. It's designed to protect both lender and borrower interests while ensuring smooth access to working capital. The document becomes especially important in the Indian context where working capital management is critical for businesses dealing with longer payment cycles and seasonal business fluctuations. The agreement's structure accommodates various forms of working capital facilities such as cash credit, overdraft facilities, and bill discounting, all while maintaining compliance with local regulatory requirements.

What sections should be included in a Working Capital Facility Agreement?

1. Parties: Identification of the lender(s) and borrower(s) with complete details

2. Background: Context of the facility, including borrower's business and purpose of the facility

3. Definitions and Interpretation: Definitions of terms used in the agreement and rules of interpretation

4. The Facility: Details of the working capital facility, including type, amount, and purpose

5. Conditions Precedent: Conditions that must be satisfied before the facility becomes available

6. Drawdown and Utilisation: Procedures and conditions for drawing down the facility

7. Interest and Fees: Interest rates, calculation methods, and applicable fees

8. Repayment and Prepayment: Terms for repayment and any prepayment provisions

9. Representations and Warranties: Borrower's representations regarding its status, capacity, and compliance

10. Information Undertakings: Borrower's obligations to provide financial and other information

11. General Undertakings: Borrower's general operational and business commitments

12. Financial Covenants: Financial ratios and thresholds the borrower must maintain

13. Events of Default: Circumstances constituting default and consequences

14. Changes to Parties: Rules for assignment and transfer of rights and obligations

15. Payment Mechanics: Payment procedures, timing, and currency provisions

16. Notices: Communication procedures between parties

17. Governing Law and Jurisdiction: Applicable law and dispute resolution provisions

What sections are optional to include in a Working Capital Facility Agreement?

1. Security: Required if the facility is secured, detailing the security structure and enforcement rights

2. Guarantee: Include when there are corporate or personal guarantors for the facility

3. Agent and Security Trustee Provisions: Required for syndicated facilities with multiple lenders

4. Set-off Rights: Detailed set-off provisions if specifically required by the lender

5. Increased Costs and Tax Gross-up: Include for sophisticated borrowers or when tax implications need specific attention

6. Market Disruption: Include for facilities with floating interest rates

7. Accordion Facility: Optional provision for future increase in facility amount

8. Force Majeure: Specific provisions for unforeseen events affecting facility operation

What schedules should be included in a Working Capital Facility Agreement?

1. Facility Limits and Sub-limits: Detailed breakdown of facility components and their respective limits

2. Conditions Precedent Documents: List of required documents and conditions to be satisfied

3. Form of Drawdown Notice: Template for borrower's drawdown requests

4. Calculation of Interest and Fees: Detailed methodology for calculating interest and fees

5. Security Details: Description of security assets and perfection requirements

6. Form of Compliance Certificate: Template for periodic compliance reporting

7. Existing Security and Permitted Indebtedness: List of pre-existing security and allowed debt

8. Form of Assignment and Transfer Certificates: Templates for transferring facility interests

9. Financial Covenants Calculations: Detailed methodology for calculating financial covenants

10. Contact Details: List of authorized representatives and contact information

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Jurisdiction

India

Publisher

Genie AI

Document Type

Finance Agreement

Cost

Free to use
Relevant legal definitions
Clauses
Relevant Industries

Manufacturing

Retail

Information Technology

Pharmaceuticals

Construction

Agriculture

Automotive

Textiles

FMCG

Infrastructure

Trading

Logistics

Healthcare

Real Estate

Education

Relevant Teams

Legal

Finance

Treasury

Corporate Banking

Risk Management

Compliance

Credit

Company Secretarial

Business Development

Senior Management

Operations

Relevant Roles

Chief Financial Officer

Finance Director

Treasury Manager

Financial Controller

Corporate Lawyer

Legal Counsel

Relationship Manager (Banking)

Credit Manager

Risk Manager

Company Secretary

Managing Director

Finance Manager

Accounts Manager

Corporate Banking Officer

Compliance Officer

Credit Analyst

Business Development Manager

Industries
Indian Contract Act, 1872: Fundamental law governing contract formation, validity, performance, and enforcement in India. Essential for ensuring the agreement meets basic contractual requirements.
Banking Regulation Act, 1949: Regulates banking operations in India, including lending activities and working capital financing. Sets parameters for bank lending and associated compliances.
Reserve Bank of India Act, 1934: Provides framework for RBI's regulatory authority over banks and lending institutions. Contains guidelines on credit facilities and working capital limits.
Registration Act, 1908: Relevant if the agreement needs registration, particularly if it involves immovable property as security.
Companies Act, 2013: Governs corporate borrowing powers, creation of charges, and registration requirements for companies taking working capital facilities.
Stamp Act (as applicable in relevant state): Determines the stamp duty payable on the facility agreement and security documents in the relevant state.
Recovery of Debts Due to Banks and Financial Institutions Act, 1993: Provides mechanism for recovery of debts due to banks and financial institutions.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI): Relevant for enforcement of security interests and recovery mechanisms for secured lending.
Information Technology Act, 2000: Relevant if the agreement involves digital signatures or electronic execution.
Foreign Exchange Management Act, 1999: Applicable if the working capital facility involves foreign currency or cross-border elements.
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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