Working Capital Loans/ MSME Finance :
The Micro, Small & Medium Enterprises [MSME] sector has been recognized as the engine of growth.The development of SME has been assigned an important role in national plans. Commercial Banks are advised from time to time by GOI and RBI to finance liberally to MSMEs. Lending to Micro & Small Enterprises qualifies for PSA.
A working capital loan is a loan that has the purpose of financing the everyday operations of a firm. Working capital loans are used to cover accounts payable, wages etc. Companies that have high seasonality or cyclical sales cycles usually rely on working capital loans to help with periods of reduced business activity. Working capital is the cash available to finance a company's short-term operational needs. However, sometimes a company does not have the adequate cash on hand or asset liquidity to cover daily operational expenses. Therefore, working capital loans are simple corporate debt borrowings that are used by a company to finance its daily operations. The immediate benefit of a working capital loan is that it's quick and lets business owners efficiently cover any gaps in working capital expenditures. Some working capital loans are unsecured. If this is the case, it means that a company is not required to put down any collateral to secure the loan. However, only companies or business owners with a high credit rating are eligible for an unsecured loan. Businesses with little to no credit have to securitize the loan. This type of finance / loan is suitable for meeting the needs of small to medium sized enterprises (SME) that can include Small Scale Industries, Traders, Builders, Societies, Trusts, Educational Institutions, Hospitals and Hotels etc. This funding represents a major function of the general business finance market in which capital for different types of firms are supplied, acquired and priced.
The capital can be supplied in the form of:
- Cash credit /Overdraft for meeting working capital finance requirement.
- Export credit to provide pre-shipment and post shipment finance.
- Letter of credit to facilitate trade.
- Bank guarantees for meeting performance and financial obligations.
- Term loans and Working Capital Term Loans for purchase of commercial assets and business expansion needs.
- Interest rate is linked to Bank’s base rate for fund based facility.
- Low collateral requirement and lending available up to 1.20 times of the value of collateral.
- Leasing Hire-purchase agreements
- Venture capital or private equity where viability of business is the prime criteria
- Asset-based finance (factoring / invoice discounting)
- Foreign Bill Discounting / Negotiation/ Purchase (FBD/FBN/FBP )
- Letter of Credit Backed Bill Discounting (LCBD)
- Secured / un secured Bill Discounting
- Working capital Demand
- Buyer's Credit
- Invoice Funding
- Letter of Credit Backed Purchase Bill Discounting
Various forms of SME finance can be:
Institutional Finance – Educational institutions can avail term loan(s) against their government-approved premises like: school, college, university etc.
Builder Finance – Builder can avail finance on his / her self-owned commercial or residential property or on unsold inventory (flats/houses/villas etc).
Project Finance – option is available for the new industrial project setup.
Construction Finance – This product is suitable for builders for construction of new apartments, commercial complex, malls or townships etc.
Equipment Finance – It is available for the purchase of different sorts of equipment like machinery, construction equipment, medical equipments etc.