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Case Study – Asset Liability Mismatch

An established corrugated paper box manufacturer having yearly turnover of over ₹ 5 crores has borrowed close to ₹ 2 crores short term Business loan to acquire an Industrial land and set up a manufacturing line. The very nature of the loan has put pressure on cash flow through higher repayment commitment.

The unit approached aagey to raise further Business Loan to ease the pressure on cash flow. The assessment model understood that, the client is into a debt trap and using the similar short-term fund to finance the repayment of the existing short-term fund. The system analyses the business cash flow, matched with repayment capability and co-lateral value of the asset created.

The model suggested to replace the short term borrowing with long term fund to manage the mismatch in asset/liability and ease the cash flow. The firm successfully shifted the short-term high cost borrowing with low-cost long-term debt, thereby reduces its cash out flow by 41% and a yearly saving of ₹ 16 Lakh of interest cost.