FREQUENTLY ASKED QUESTIONS :
Working Capital
Working capital is considered a part of operating capital. Gross working capital equals to current assets. Working capital is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. The working capital can be availed as cash credit, overdraft facility or short term loan, etc.
Term Loan
Term Loans are provided for companies for specific purpose such as creation of assets such as purchase of machineries, building additional capacity for manufacturing etc. Term loans are generally secured loans on basis of collateral. Term loans are good to increase ones manufacturing capability/capacity and there by increase supply to the market. Generally in India term loans are given for a tenure up to seven years.
Private Equity
On way of increasing the financial strength of an organization is by infusing fresh equity capital in the company. The infusion can be facilitated by the existing shareholders or can be done by brining in new shareholders under specific mandate. We facilitate to identify new equity partners who can be corporates specializing in this or can be High Net worth Individuals.
CGTMSE Loan facility. Credit Guarantee Fund Trust for Micro and Small Enterprises.
Ministry of Micro, Small & Medium Enterprises (MSME), Government of India launched Credit Guarantee Scheme (CGS) so as to strengthen credit delivery system and facilitate flow of credit to the MSE sector. To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
CGTMSE has introduced a new “Hybrid Security” product allowing guarantee cover for the portion of credit facility not covered by collateral security. In the partial collateral security model, the MLIs will be allowed to obtain collateral security for a part of the credit facility, whereas the remaining part of the credit facility, up to a maximum of 200 lakh, can be covered under Credit Guarantee Scheme of CGTMSE. CGTMSE will, however, have pari-passu charge on the primary security as well as on the collateral security provided by the borrower for the credit facility.
The main objective is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavour to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency. The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 50/75/80/85 per cent of the credit facility.
Project finance
We facilitate in identifying funds for large projects from various financial institutions. Various existing business shall have their own expansion plans. Here there are a few factors which are very relevant to achieve the same. Primarily a proper understanding of existing business, market requirement, whether the expansion relevant to the present business and how it facilitates the growth story, can the present management got the bandwidth to facilitate the growth post expansion, etc. Here a very good project report is crucial to convey the vision and mission of the promoters for the project.
ECB (External commercial Borrowings)
An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign capital by Indian corporates. ECBs include commercial bank loans, buyers’ credit, suppliers’ credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate.
LIBOR Rate
LIBOR helps Indain corporates who are planning to avail ECB. Here the interest rate will be inked to LIBOR by international banks, such as LIBOR plus 100 basis ponts etc depending on the tenure of the borrowing. LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for IntercontinentalExchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF), and serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There are a total of 35 different LIBOR rates each business day. The most commonly quoted rate is the three-month U.S. dollar rate.
MCLR
Marginal cost of funds-based lending rate (MCLR) is an internal reference rate for banks fixed by the Reserve Bank of India (RBI). MCLR is a tenor-linked internal benchmark, which means the rate is determined internally by the bank depending on the period left for the repayment of a loan. MCLR is closely linked to the deposit rates and is calculated based on the marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium. On 1 April 2016.The Reserve Bank of India introduced the MCLR methodology for fixing interest rates wherein MCLR replaced the base rate structure, which had been in existence since 2010. The MCLR is only a starting point, a benchmark. All interest rates above MCLR are legitimate and have been allowed by the RBI.
Loan Against Property
This facility can be availed by individuals or corporates who have unencumbered residential/commercial properties. It is possible for the client to leverage these fixed assets provided there is adequate cash flow to repay the principle and interest based upon their past financial statements and future projections acceptable to the financial institutions.
Rental Discounting
This facility can be availed by individuals or companies who have rental income. The loan can be availed for tenure of 10 years depending upon the financial institution. The financial institution will discount the future rent receivables and pay it upfront to the borrower. The borrower can expect may be up to 75 % of the total rent receivable. This will assist the borrower to leverage the future rent receivables and build further assets or help his company to increase capacities to further penetrate the market by achieving financial muscle.
Project reports
preparation of project reports to obtain financial assistance from various institutions. Project reports form a key part of all major borrowings. This gives a road map to the financial institution to analyze various aspects such as market conditions, entry/exit barriers, market segment, nature of business, profile and experience of the promoters, objectives of the company, projections, viability of the proposal, economic conditions etc. All the more this will also facilitate the lenders to understand the future cash flows, net worth, etc.
Unsecured business loan
This facility is of tremendous value proposition for small business. This will assist them to leverage their past corporate performance to obtain financial assistance for further growth. For this its important to note that the individual/company has filed their financial statements accurately. This is where our accounting service comes handy. Here we train the concerned as to how to manage the financial health of the company and properly manage all the data pertaining to their financial transactions.
CMA
Credit Monitoring Arrangement Data :Objective and relevance of CMA Data and their preparation methodology. According to RBI, CMAdata is required for Project Loans, Term Loans and Working Capital Limits. CMA Data is a detailed analysis of working capital management of the borrower and the purpose of this statement is to ensure the use of funds effectively.
Bank Statements
These are Current account statements for corporates or Savings bank account statements for individuals. These statements reflects the financial aspects, such as income, transactions, cheque bounce, salary credit, etc whether there are any irregularities etc
P&L
Profit and Loss Statement
Balance Sheet
A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity. The balance sheet is one of the three (income statement and statement of cash flows being the other two) core financial statements used to evaluate a business.
DP – Drawing Power
Calculation of Drawing Power, It is calculated by considering the total value of paid stock (Paid stock=Stock fewer Creditors) plus book debts (not more than 90 days old) and deducting margin from the same. In most of the cases, debtors up to 90 days are considered for calculating drawing power
ITR income tax returns
This is an important document to be filed mandatorily every year to access the annual income of an individual, partnership, company etc
Stand By Letter of Credit (SBLC)
A stand by letter of credit will generally issued for an year. SBLC is generally used in international trade transactions. The Indian banks can also extend Working Capital or Term Loans to the corporate in whose favor the SBLC is issued, here the SBLC will act as a guarantee or collateral for the funding bank. Indian banks will not accept SBLC issued by any bank. The accepting bank will have to verify the bank as well as country risk and other factors before extending fund or non fund based lines to the corporate favored. The Indian bank may deny or request a confirmation of the SBLC by an alternate acceptable bank.
Letter of Credit – LC
This is a non-fund based credit line provided by the bank. This will help the buyer to purchase without making upfront payment for his purchase and improve his payment terms at the same time the seller’s interest are also protected. A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount. This ensures that the seller’s risks are mitigated and absorbed the LC issuing bank. The bank will issue the LC to the buyer.
Bank Guarantee – BG:
This is a non fund based credit line provided by the bank, a guarantee from a lending institution ensuring 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 basically also an instrument used to ensure that certain pre agreed performance criteria between the seller and the buyer are also met.
Packing Credit
Packing credit is a pre shipment funding provided by bank to exporters to procure raw materials to be converted as finished products for export. Banks provide packing credit against the stock of raw materials or finished goods also in certain cases. This is given by authorized bank as per the policy guidelines laid down by Reserve Bank of India.
Buyers Credit
Buyer’s credit is a short term credit available to an importer (buyer) from overseas lenders such as banks and other financial institution for goods they are importing. The overseas banks usually lend the importer (buyer) based on the letter of comfort (a bank guarantee) issued by the importer’s bank. For this service the importer’s bank or buyer’s credit consultant charges a fee called an arrangement fee. Buyer’s credit helps local importers gain access to cheaper foreign funds that may be closer to LIBOR rates as against local sources of funding which are more costly. The duration of buyer’s credit may vary from country to country, as per the local regulations. For example in India, buyer’s credit can be availed for one year in case the import is for tradeable goods and for three years if the import is for capital goods.
Loan against securities
This assist the individual or corporate to avails an overdraft facility against their investments such as LIC policy, shares etc., without liquidating them. The investment certificate will have a lien marked in favor of the funding institution.
Gold loan
By availing this option the client can pledge their gold jewelry as security and avail finance to meet their personal or business requirement. The bank will verify the gold for its purity and then fund a certain percentage of the total value of gold.
Private finance( High cost at 3 to 4% per month)
There are individuals and corporates who are willing to fund individuals who are not able to avail financial services from banking or NBFC reach. Here the risk for the lender is high hence the interest rate will be steep as high as 2 to 3 % per month. We do not advice such borrowings since the collateral may have to given by way of register mortgage where even on default of one EMI will lead to the loss of collateral. The lender may provide only 50 % of the collateral value for the borrowing. This will certainly lead to significant loss to the borrower.
SMA: Special Mention Accounts :
SMA has been classified as SMA 0( day 0), SMA 1( 30 Days), SMA 2( 60 Days) & SMA 3 (90 Days). If there is a breach in contract by the client, then the account needs to be classified by the bank based upon the guidelines stipulated by RBI. When any of the account falls any of the above category, then the same has to reported to the RBI. This data is available for all banks to cross check prior to take over of the existing facility of a client form another bank.