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These loans are for funding the core working capital of the company, which do not fluctuate in the short term. Risk profile is similar to an Overdraft facility. Revolving working capital loans can be offered to highly reputed and credit worthy customers against their stocks and book debts. The requirement is computed considering the actual and projected levels of inventory and receivables, less the amount of creditors. These can be secured by a floating commercial charge over stocks and receivables.

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These loans are provided for financing inventory purchase and production expenses against confirmed orders. The existence of confirmed order ensures that the goods purchased and production expenses incurred will result in sale of finished goods and acceptable level of cash realizations to repay the loan outstanding as scheduled. A specific charge over inventory and receivables is desirable when practical. Also, goods financed should be properly insured with ODB as the loss payee.

For a regular supplier with open orders, a revolving line could be structured against a floating commercial charge over current assets and disbursals could be made under this line based on a the drawing power, which would depend on the value of stocks and receivables. This could be monitored monthly based on statements of stocks and receivables provided by customer. These can be additionally covered under insurance policy ECGA.Return to Top

 

Sometimes large orders are received by companies, which are over and above the normal business volumes. To execute these specific orders, a company may need short term pre-shipment finance for buying raw materials and meet processing costs.

These loans need to be liquidated upon realization of receivables. For specific order financing, it is important to assess the firm’s ability to complete the order based on past track record and available infrastructure as well as the capacity of the buyer to pay for the goods ordered in time.

Pre-shipment finance may be considered based on confirmed specific orders for up to 70- 90% of the requirement with the balance coming from customer’s own resources. As a matter of practice, the profit element of the order is not financed. These can be additionally covered under ECGA Insurance policy.Return to Top

 

These are post import financing facilities provided to the customers to finance their purchases pending sale of underlying goods and receipt of sales proceeds. These are made available against execution of a Trust Receipt Loan Agreement supported by genuine trade transaction/shipping documents. Under this facility, goods are released to the customers who undertake to hold underlying goods and all sale proceeds thereof in trust to the Bank, also agreeing to deposit sale proceeds immediately on receipt. Goods covered by each trust receipt and the monies outstanding thereof represent a separate transaction distinct from all other goods. Therefore goods financed/receivables against each LTR serve as security.

Since there are underlying goods, in case the borrower does not pay, the Bank has a right to dispose the goods or if the goods have been sold, demand payment for these goods from the buyer/ customer. Therefore the facility has a lower risk profile than an Overdraft or working capital loan. LTRs are used for financing purchase of goods, prior to processing/ sale and realization of monies. The period of these loans is based on the time that it takes between the actual payment for the goods purchased and the time for realization of sale proceeds. Thus the tenor can vary depending on the type of business, nature of goods and conversion cycle. These loans are typically used to retire import documents, both under LC and received under collection. LTRs may also be allowed for local purchases or advance remittances, wherever applicable only to strong creditworthy customers..Return to Top

 

Seasonal finance requirements arise in industries, such as, school supplies, Ministry of Health supplies, travel & ticketing business, garments etc., where the assets build-up takes place in certain periods, which are followed by periods of cash realizations wherein there is no requirement for regular working capital finance.

A monthly cash flow projection is required to compute the working capital requirements and loans need to be structured based on these cash flows.Return to Top

 

These facilities are offered for financing receivables. In many instances a company may take post-dated cheques from its customers to ensure repayment of goods sold on credit. Similarly, a Bill of Exchange may be drawn specifying the terms of payment against goods sold, which is accepted by the buyer for payment on a specified future date. These cheques and bills may be discounted for providing working capital funding. These can be additionally covered under credit risk insurance policy of the ECGA.

For cheque discounting, the resource is considered better as bouncing of a cheque constitutes criminal offence. Care should be taken to ensure genuineness of underlying transaction through supporting shipping documents, delivery notes, etc. The credit worthiness of the drawer of the cheque/ party accepting/ acknowledging the Bill of Exchange/ Invoice is the most important consideration for these facilities.Return to Top

 

These facilities are in the form of advances against confirmed receivables backed by accepted invoices/bills supported by LPOs, delivery orders, acknowledged invoices, payment certificates etc. This facility provides an advance against receivables to the customer upto a certain percentage (typically 70%-90%) of the invoice value. The tenor of each advance is decided based on the credit/payment terms agreed between the borrower and the buyer &/or based on the prevailing market trend.

These are considered relatively secure as the advances are backed by an acceptance to pay/ acknowledgement of receipt of goods and acknowledgement of assignment of receivables from the buyer of goods/ services. The important factor to stress upon in structuring these facilities is the track record of the company with the customer in supplying goods/ services, the level of deductions/ rejections (margin for advance is based on this), the time for realization of receivables vis-à-vis agreed credit period and the credit worthiness of the buyer. It is normally desirable to approve a buyer prior to granting such advances.

Care should be taken to ensure the genuineness of underlying transaction through supporting shipping documents, delivery note, etc. Invariably a demand promissory note is obtained for each advance to establish recourse to the borrower. The facility can be additionally supported by Credit Risk Insurance policy of ECGA.Return to Top

These facilities are post shipment facilities made available against export receivables backed by shipping documents such as invoices/bills, delivery orders, copy of Bill of Lading/ Air Waybill, packing list etc,in respect of goods already exported either under LC, collection or on open account basis, payment for which is expected within the credit period/ terms agreed with the buyer.

The export receivables should invariably be assigned to the Bank if not covered under LC. The facility be additionally supported by Credit Risk Insurance policy of ECGA. This facility provides an advance against export receivables to the customer upto a certain percentage (typically 70%-90%) of the invoice value. The tenor of each advance is decided based on the credit/payment terms agreed between the borrower and the buyer &/or based on the prevailing market trend. These can be considered relatively secure as the advances are backed by an acceptance to pay/ acknowledgement of receipt of goods and acknowledgement of assignment of receivables from the buyer of goods/ services. The important factor to stress upon in structuring these facilities is the track record of the company with the customer in supplying goods/ services, the level of deductions/ rejections (margin for advance is based on this), the time for realization of receivables vis-à-vis agreed credit period and the credit worthiness of the debtor /buyer.

It is normally desirable to approve a buyer prior to granting such advances. Care should be taken to ensure the genuineness of underlying transaction through supporting shipping documents, delivery note, etc. Invariably a demand promissory note should be obtained for each advance to establish recourse to the borrower.Return to Top

 
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