About SME Loan

Working Capital Loan

This loan can be availed for everyday working capital requirements of business. It can be availed in the form of cash credit/overdraft for a period of 12 months. It is generally secured against fixed asset and current assets of the company

This is a collateral free facility under which cash credit/term loan can be availed up to 1 Crore.

This facility is designed under the Credit Guarantee Fund Trust for Micro and Small Enterprises (MSE).

(CGTMSE) scheme of SIDBI and Ministry of Small and Medium Enterprises as defined under MSMED Act, 2006.

Letter of credit limit is availed by a bank to assure seller of their payment up to letter of credit limit.

It is generally used as a guarantee/assurance to seller against the supply of raw material or any equipment/machine.

It is very important facility for the import of raw material or machine where seller requires assurance of their payment.

It is a non fund based limit issued and bank charges annual commission up to 1% for this facility. Letter of credit is generally of two types:

  • Letter of Credit at Sight
  • LC at sight is a letter of credit that is payable immediately after seller fulfills requirement of letter of credit.

    This letter of credit offers quickest form of payment for sellers on submitting the required documents to the bank. Seller prefers LC at sight in case buyer is from a volatile country or there is no close relationship of seller with buyer.

  • Usance Letter of Credit/Deferred payment letter of credit:
  • It is a letter of credit that is paid fixed number of days after shipment or presentation of required documents.

    It differs from LC at sight in that no draft is involved and seller cannot discount this LC

Bank guarantee is a promise/guarantee offered by bank and if particular borrower defaults on his commitment bank will cover the loss.

For example a company dealing into turnkey projects need to furnish bank guarantee to client as a assurance to complete the project on time. In case borrower is unable to honor its commitment, bank guarantee act as a safety measure for client.

It is a non fund based limit issued and bank charges annual commission up to 1% for this facility.

Types of Bank Guarantees
  • Financial Bank guarantees:
  • These guarantees are given purely for monetary obligations like obligation to make earnest money or guarantees given to sale tax department etc.
  • Performance guarantees:
  • These guarantees are given in respect of performance of obligation. In event of default on performance, bank will reimburse the loss incurred by the beneficiary due to non-performance.
  • Deferred payment guarantees:
  • These guarantees are given in respect of deferred payment need to be made by debtor. In event of default on payment by debtor, bank need to pay the amount to creditor.

Buyers Credit is a short term facility given to importer from banks for the raw material or goods they are importing.

It helps importers gain access to cheaper funds linked to LIBOR rate as compared to local rates which are linked to base rates and are generally higher.

This facility is avail by an importer to get cheaper funds linked to libor rate as compared to local rates linked to base rate.

It is provided to importer by foreign bank of seller’s country. Local bank issue usance bill under LC for importer and in return foreign bank discount this LC for seller.

This facility can be availed by exporters to avail finance at much cheaper rate linked to LIBOR rate as compared to local rates linked to base rates.

Types of Export Credit:
  • Pre Shipment Export Credit/Packing credit: This is availed by exporter prior to shipment of finance generally to procure raw material, manufacturing of goods prior to shipment.
  • Packing credit can be availed on the basis of letter of credit received from importer.
  • Post Shipment Export: This is availed by exporter after shipment of goods to the date of realization of export proceeds.
  • As per RBI guidelines, the period prescribed for realization of export proceeds is 12 months from the date of shipment.

This facility is availed to generate liquidity for the company against the security of bills received from customer.

The banks deducts the interest on the bill and release the balance and hence it is called as bill discounting.

A financial transaction in which borrower sells book debts to the financial institution at discount.

This is availed to generate liquidity and is used mainly for working capital purpose.

This facility is availed by borrower to make faster payments to suppliers to avail cash discounts.

The finance company makes payment to supplier against borrower’s invoices and in return charges interest for the period of finance.