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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.

 

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