Letters Requesting a Loan, Overdraft or Cash Credit Facility

Why a Company Writes to Its Bank for Funds

Even a profitable, well-run company can find its own cash falling temporarily short of what it needs — a large order to fulfil before payment is received, machinery to buy, or simply the ordinary cycle of holding stock and waiting for customers to pay. Rather than turning away business or delaying payments to its own suppliers, a company approaches its bank for a loan, an overdraft, or a cash credit limit, exactly the facilities the previous section on types of accounts described.

Board Resolution First, Again

Borrowing money is one of the specific powers Section 179(3) of the Companies Act, 2013 reserves for exercise only by a Board Resolution passed at a meeting — a company's Secretary cannot simply request an overdraft on their own initiative. The Board Resolution authorising the borrowing must state the facility sought, the amount (or the limit up to which the Board authorises borrowing), and the security, if any, the company is willing to offer, and it must authorise a named officer (typically the Company Secretary, or a director together with the Secretary) to correspond with the bank and to execute the necessary documents on the company's behalf.

What the Bank Will Want to See

Along with the request letter, a bank normally expects:

• The certified Board Resolution authorising the borrowing and naming the signatory.
• The company's recent audited financial statements (Balance Sheet and Profit and Loss Account), so the bank can assess the company's repaying capacity.
• Details of the security offered — for an overdraft, this is commonly a Fixed Deposit held with the same bank; for a cash credit limit, it is a statement of the stock-in-trade or book debts offered as security, often supported by a stock statement.
• The purpose for which the facility is required, stated clearly.

Specimen Letter — Requesting an Overdraft Facility Against a Fixed Deposit

SAHYADRI ENGINEERING WORKS LIMITED

Registered Office: Shivaji Udyog Nagar, Kolhapur – 416008

CIN: U28900MH2012PLC145678

Date: 3rd August

The Branch Manager

State Bank of India

Kolhapur Industrial Estate Branch

Kolhapur

Dear Sir/Madam,

Sub: Request for an Overdraft facility of ₹5,00,000 against our Fixed Deposit — Current Account No. 30456789012

We hold a Current Account No. 30456789012 with your branch, and we also hold a Fixed Deposit of ₹6,00,000 with you under Receipt No. FD/2245, maturing on 15th March next year.

Our Board of Directors, at its meeting held on 28th July, resolved to seek an Overdraft facility of ₹5,00,000 against the security of the above Fixed Deposit, to meet a temporary requirement of working capital for an urgent supply order, and authorised the undersigned to correspond with you and to complete the necessary documentation in this regard. We enclose a certified copy of the said Resolution, together with the original Fixed Deposit Receipt duly discharged for the purpose of lien.

We request you to kindly sanction the Overdraft facility against lien on the Fixed Deposit and advise us of the terms, including the rate of interest and any documentation still required to be completed.

Thanking you,

Yours faithfully,

For Sahyadri Engineering Works Limited

(Prasad Joshi)

Company Secretary

Encl: Certified Board Resolution; Fixed Deposit Receipt (discharged) …