SME WORKING CAPITAL FINANCE (Multiple options can be selected)

 

 

 

 

 

Product Overview

 

Working Capital finance is granted to meet the financial gap or the time lag between purchases and the resultant cash derived from sales. It is used to meet the regular day to day expenses. This finance is provided in form of cash credit, overdraft, term loan, letter of credit, bank guarantee, working capital demand loan/term loan, post shipment and pre shipment finance, as the need may be to the manufacturer/trader.

 

Cash Credit

A Cash credit is given for purchase of raw materials, stores, fuel, labour payments, power charges, storing of finished goods till they are stored and financing the sales by way of sundry debtors/receivables. It is granted to bridge the gap in working capital needs.

A Cash credit is granted against hypothecation of stocks such as raw materials, work in process, finished goods and stock-in-trade, including spares and stores.

It is a running account, regulated to the firm/company’s drawing power limit calculated basis the composition of current assets and current liability. Stock/debtors statement is submitted month on month to ascertain the drawing power.

Term loans

Term loans are granted for purchase of plant & machinery, purchase of commercial property like shops, office space, factory land and building etc.

These term loans are granted for longer term periods to suit customer requirements. These are payable as EMI month on month for a fixed tenure.

Banks also grant working capital term loans, which are of short term nature, to meet urgent working capital requirements. These are granted to a period of upto 3 years depending on the purpose and need.

Letter of Credit/ Buyer's credit

A letter of credit is a document from a bank, guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.

These letters of credit are utilized in inland trade where the buyer and seller are at different parts of the country, and requires a guarantee for shipment of goods or credit worthiness of the buyer.

They are also used in international transactions to ensure that payment will be received where the buyer and seller may not know each other and are operating in different countries. In this case the seller is exposed to a number of risks such as credit risk, and legal risk caused by the distance, differing laws and difficulty in knowing each party personally. A letter of credit provides the seller with a guarantee that they will get paid as long as certain delivery conditions have been met. For this reason the use of letters of credit has become a very important aspect of international trade.

Buyer’s credit is a finance available to importers, in foreign currency, generally granted as an extension of a sight LC or an usance LC. The exporter benefits because they’re paid cash on delivery and acceptance of the product or service. The foreign buyer benefits because they get extended credit terms at markets rates or better. In India Buyer’s credit is granted upto a tenor of 180 days from date of shipment. Its granted for a term of 360 days from shipment date, in case of import of capital goods.

Export Finance

These are also working capital limits, granted in foreign currency.

Export finance is of two types :

Pre-shipment finance
Post-Shipment finance

Preshipment finance may be granted in the form of packing credit in rupees and foreign currency, advances against incentives receivable from government and duty drawbacks.

Post shipment finance is granted as a purchase or discount of export documents under confirmed orders, negotiation, payment or acceptance of documents under LC, advances against export bills sent for collection, export bills rediscounted in foreign currency.

Rupee export credit is available for a maximum period of -360- days from the date of first disbursement. The corporates, if required can book forward contracts in respect of future export credit drawals.

Vendor/ Supplier/ Dealer finance

Realisation of funds blocked at various stages, often pose a serious problem to the firms/companies, which gives rise to working capital gaps. Vendor finance is one of the best options suited for this purpose.

These can be a vendor finance which can be in the form of invoice discounting or bill discounting, to finance their sale bills. Or it can be their supplier bills, which can be finance the credit purchases. Whatever be the finance, it provides immediate support to the business to solve their financial crisis.

Dealer finance is a specific scheme given to dealers of OEMs, large corporates for purchase of inventory. This is also a form of working capital finance helps the dealers to lift material, finance their regular expenditure etc.

Bank Guarantee

A Bank guarantee is a promise from a bank that the liabilities of a debtor will be met in the event that you fail to fulfill your contractual obligations.

Following are the types of Bank Guarantee :

Performance Guarantee
Bid Bond Guarantee
Financial Guarantee
Advance Payment Guarantee
Foreign Bank Guarantee
Deferred Payment Guarantee

Generally bank guarantees are granted for a tenor of 36 months. However, the maximum validity of a bank guarantee is 10years.

  • Entities which are 3 years in existence, and 2 years into same line of business is eligible for this facility.

  • This facility is available to all segments of business - manufacturers, traders, services, educational trusts etc.

  • The financials should be audited, and the entity should be in profits.

  • Collateral is required for this facility. The amount of collateral required depends on the policies of the bank. Some accept at 50%, and vary upto 150% of the collateral requirement.

  • The company should not be under default category, as listed by the RBI

  • Cheque bounces/suit filed/write off are considered adversely by the banks, unless backed by sufficient reasoning/documents for justifying the same.

Document Required

Detailed List

Application form

Duly signed application form by the firm/company applying for working capital finance

KYC Documents

  • Business proof - Shop establishment/certificate of incorporation/partnership deed

  • PAN card of entity/partners/directors, guarantors.

  • Address proof of entity/partners/directors, guarantors

Financials

  • 3 years Audited balance sheet/P&L with schedules to balance sheet

  • Acknowledged copy of IT returns filed for the last 3 years.

  • Current year performance till date along with projected performance for the year.

  • VAT returns justifying sales for the current year.

Bank Statement

Latest Bank statement for the last 6 months (new proposal) and 12 months (Take-over proposals). The statement of account should be of the operating account

Order Status

Present status of orders on hand

Collateral Documents

The latest sale deed along with parent documents for the last 30 years for the property to be submitted as collateral . Along with the government approvals, latest paid water/property taxes.

Post Sanction Documents

As stipulated by the bank

Documents