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Working Capital Loan
Working capital loans can be availed by businesses
to meet their funding needs for day to day operations or short-term operations.
Primarily they are used for the following purposes:
1. Purchase of inventory/raw
materials in a manufacturing setup
2. Tide over debt receivables
3. Advance payment to suppliers
4. Meet routine expenses like
utility bill payments and payroll expenses
Small and Medium Enterprises who are in cyclical
businesses or those in an expansion phase would be prime candidates to avail of
working capital finance.
- Bank
Overdraft / Cash credit Facility: Overdraft or Cash credit Limits are a part
of fund-based limits for the customer that can be used towards procurement
of raw material and other working capital expenses. The best part of the same is that the
interest payable is on the amount that is being utilised by the borrower.
The Cash Credit limit is derived basis the drawing power available for the
company on a monthly basis. The Overdraft can be fixed against a security
that is pledged with the bank (usually an immovable asset).
- Bank
Guarantees: A Bank Guarantee can be
used towards purchase of raw material and in some instances can also be
utilised towards guaranteeing the principal on performance. A bank
guarantee is often provided when the lending institution guarantees that
the liabilities of the debtor will be met, if the debtor fails to settle a
debt. Bank guarantees are issued by banks against a margin amount that is
pledged and the margin is usually determined by the creditworthiness of
the borrower.
- Letter
of Credit: A Letter Of Credit can be used towards procurement of raw material.
A Letter of Credit from a bank guarantees that the seller will receive his
specified amount on a specified date if the delivery conditions are met as
decided.
- Packing
Credit (PC): Packing Credit
is offered to exporters to help them finance the purchase and import of
raw materials, and the processing and packing of the goods meant for
export. In Packing Credit, there are pre shipment and post shipment limits
which are derived based on the business model of the exporter.
- Supply
Chain Finance / Bill Discounting: Based on the business model, supplier
bills as well as the buyers’ bills can be discounted. The Financial
Institution purchases the bill (i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill after a discount to the
customer's account. The transaction is practically an advance against the
security of the bill and the discount represents the interest on the
advance from the date of purchase of the bill until it is due for payment.