Working Capital Types
Overdraft
Loan arrangement under which a bank extends credit up to a maximum amount (called overdraft limit) against which a current (checking) account customer can write checks or make withdrawals. The most common form of business borrowing, an overdraft is a type of revolving loan where deposits (credits) are available for re-borrowing, and interest is charged only on the daily overdraft (debit) balance.
Cash Credit
Cash credit is a type of short term loan provided to companies to fulfill their working capital requirement. Overdraft is a facility given by the bank to companies, to withdraw money “more” than the balance available in their respective accounts. This product comes with secured and unsecured facility.The secured loan amount depends on the sales growth and colatral offered.
Bank Guarantee
The bank guarantee means a lending institution ensures that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. This is a non-fund based working capital financing. Bank Guarantees are an important banking arrangement and play a vital role in promoting international and domestic trade. Bank Guarantees are an important banking arrangement and play a vital role in promoting international and domestic trade.
Letter of Credit
A letter of credit is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase OR Letters of credit are formal trade instruments and are used usually where the seller is unwilling to extend credit to the buyer. In effect, a letter of credit substitutes the creditworthiness of a bank for the creditworthiness of the buyer.
Foreign Currency Term Loan
Foreign Currency Term Loan( popularly known as FCTL) is the replacement for Term Loan in INR. Foreign currency loan refers to the loan granted by the bank through the self-raising foreign currency fund. It is Financially Viable to the client(s) who are naturally hedged (ideally should have recurring / running business for Fx Inflows). Thus, a regular Exporter can repay through Export receivables. This FCTL $ liability creates a natural hedge against a $ receivable asset.Interest on FCTL in USD can be serviced through receivables in USD only.Exports should be regular in nature and also part of those export receivables should be un-hedged so that the same can be used for repayment of FCTLs.
Bill Discounting
“Bill Discounting”, also known as invoice discounting can be defined as the advance selling of a bill to an intermediary (an invoice factoring or invoice discounting business) before it is due to be paid, less administrative charges, fees and interest. Bills and invoices are technically known as a ‘bill of exchange’.
Term loan
A commercial loan product with repayment terms extending beyond one year. The loan comes with a fixed interest rate and is typically structured as a line of credit. The borrower may draw down funds as needed, but must pay a fixed amount based upon the amount outstanding. It is given both for industrial and non-industrial borrowers i.e. both for projects / activities involved in manufacture/processing/repairing and business / trading activities etc. ROI factors depends on the nature of the project, quantum of loan, risk rating, repayment period and structure of the debt.
Factoring or Advances
“Loan Against Credit Card Swipes” or “Loan Against EDC Sales”, provides power to the retailers to take Loan Against Card Sales. These loans can also be helpful to merchants like you who want to acquire working capital to execute and expand business operations. Such loans are still unconventional but the ease of access makes them highly favorable for people looking for quick financial help. Business owners looking for credit on an immediate basis can opt for a loan against credit card sales.
About Working Capital
A working capital loan is a loan used by companies to cover day-to-day operational expenses.It is basically the investment in current assets like raw materials, stores, semi-finished goods, finished goods, sundry debtors etc. (Financial assistance given to entities to help them run their business). Its a indicator of the short-term financial position of an organization and is also a measure of its overall efficiency. It is derived from several company operations such as debt and inventory management, supplier payments and collection of revenues. It represents the money that is required for purchase / stocking of raw materials, payment of salary, wages, power charges etc. and also for financing the interval between the supply of goods and the receipt of payment thereafter.
Working Capital Eligibility Criteria
Unsecured - Working Capital - Loan - Self Employed
- 40lac plus turnover
- 2 years plus business vintage
- With or without Existing Un-secured loan track
- On banking Surrogate
- Latest 12 months GST method
- Turnover method
- Good CIBIL ratings
- Based on promoters profile
- Loan on card swiping
- 20% of the limit on the turnover or projections
Benefits: You’ll be ready to do funding and expand your business potential. you will be ready to get lower rate compare to private loan. Lenders usually don’t charge defrayment charges just in case of loan against property. The instant you repay the amount, you win it back for yourself. There aren’t several restrictions on the approach to utilize the funds once it involves LAP. You get the advantage of paying the loan either through equated monthly installments or draft facility, whichever is appropriate. LAP loans square measure usually longer tenure intensifying to fifteen years. If it’s longer tenure lower the EMI.
Feature: By keeping residential likewise as business properties as mortgage you’ll be ready to get LAP. You will be ready to pay off multiple debts by transportation them underneath a singular debt, therefore it’s proves to be the simplest manner for debt consolidation. There’s associate degreeinverse relationship between tenure and EMI. Longer the tenure lower are the EMI and the other approach around. As these square measure accessible for extended tenure.
Working Capital Partners
Working Capital Tips
- Make sure that you crossverifeied there is no product or better ROI available in the market, then only renew the WClimit.
- Foreclosure charges will different for different banks. check for foreclosure charge before signing the loan documents.
- Pre-payment of a loan will help you save tremendously on the high interest rate which you’d otherwise have to pay.
- Compare the interest rate with different lender to get low interest for loan, along with favorable terms.
- Do not renew limit if you planning to move the loan to other institutions.