INTER-CORPORATE LOANS - Working Capital Management

One other source for mobilizing short-term finance for working capital requirements is through raising inter-corporate loans or deposits. At any one point in time, it may happen that a company is having surplus funds lying idle which it may like to lend to some other company which is facing financial stringency due to its peak seasonal requirement or due to some pressing problems of liquidity.

Inter-corporate loans facilitate lending and borrowing transactions in such a manner that company with temporarily idle money can park to funds for a short period with another company which requires the same urgency. Normally, the borrowers and lenders are identified and are matched by brokers who charge for their services.

Rate of interest and other terms and conditions are governed by the negotiation between the two parties which are in turn determined by relative fund’s security and alternative availability of funds.