Difference between Bank Guarantee and Letter of Credit A bank guarantee and a letter of credit are assurances provided by financial institutions. They serve as a means for a borrower to fulfil their obligation to another party, regardless of the borrower’s current financial situation. Although they have differences, both bank guarantees and letters of credit assure the third party that if the borrower is unable to repay their debt, the financial institution will intervene on the borrower’s behalf. It’s important to note that while a bank guarantee is similar to a letter of credit, they are not identical. So, let’s delve into the comparison between bank guarantees and letters of credit. What is Bank Guarantee? A bank guarantee is a contractual agreement where the bank offers assurance on behalf of the customer to the beneficiary. This guarantee ensures that the bank will take responsibility for payment if the customer fails to fulfil their obligations. Essentially, a bank guarantee acts as a safeguard by settling the debts of the debtor. It assures the lender that if the borrower defaults on the loan, the bank will step in and fulfil the payment commitment. Types of Bank Guarantee: 1. Confirmed Payment Guarantee This is an irrevocable obligation, with this a specific amount is paid by the bank to a beneficiary on behalf of the client by a certain date. 2. Shipping guarantees A written guarantee is presented to the carrier in the event of goods arriving before the arrival of the shipping documents. 3. Loan guarantees An institution that issues a loan guarantee pledges to take on the financial obligation if the borrower defaults. Learn bank guarantee in detail here. What is a Letter of Credit? A letter of credit serves as a reliable means of ensuring payment in financial transactions. It is essentially a commitment made by the buyer’s bank to compensate the seller based on the specified documents. When an LC is issued, it provides a safety net for both parties involved. If the buyer fails to fulfil their payment obligations, the bank steps in and guarantees payment. This process of LC discounting effectively eliminates the risk for the seller and provides them with the much-needed assurance of receiving funds. Types of Letter of Credit 1. Irrevocable letter of credit An irrevocable letter of credit is a guarantee from a bank, issued in the form of a letter. Thus, an agreement is created. Wherein the buyer’s bank agrees to pay the seller as soon as certain conditions of the transaction are met. 2. Confirmed letter of credit This refers to an additional guarantee obtained by the borrower in addition to the first letter of credit from another bank. This is done in case there is an issue with the credibility of the first bank issuing LC. 3. Import letter of credit This refers to an additional guarantee obtained by the borrower in addition to the first letter of credit from another bank. This is done in case there is an issue with the credibility of the first bank issuing LC. 4. Export letter of credit The letter of credit, when received by the exporter’s bank, becomes an export letter of credit. Before the exporter can receive payment, he has fulfilled certain terms and conditions and submitted the required documents as mentioned in the letter of credit. 5. Revolving letter of credit A single revolving letter of credit can cover several transactions between the same buyer and seller. Key Difference between Bank Guarantee and Letter of Credit   Bank Guarantee Letter of Credit Definition  Bank Guarantee is given by the bank to the beneficiary in case there is a default in payment by a borrower LC is a financial document for assured payment. Parties Involved 3 Parties namely the issuer, banker, and the beneficiary (third party). 4 Parties namely the LC Issuing bank, the issuer, the beneficiary (third party), and the advising bank. Nature of business  Government contract Import-Export Default Becomes active when the borrower makes a default in payment Doesn’t wait for applicants to default  Payment Done when an obligation is not fulfilled. Payment is made when certain conditions are fulfilled  Risk Customers assume risk primarily Bank assumes the primary risk Liability Bank only makes the payment when the borrower makes defaults on the payment Bank holds primary liability and makes the payment and then collects it from the customer later. Why choose Terkar Capital? Terkar Capital arranges financial instruments for business situations. We consult aspiring entrepreneurs and promote seamless funding solutions to them. We arrange and provide a wide range of products as per the client’s needs and expectations. Our team of experts constantly guides the clients in every step of the funding process. Thus, preserving the confidentiality of the respective clients.

Business loans for MSMEs The MSME sector in India generates employment and contributes to industrial production. Funding is crucial for MSMEs to meet their working capital requirements, invest in equipment, and support expansion endeavours. There is a range of financing sources available to MSMEs, including banks, Non-Banking Financial Companies (NBFCs), government schemes, and crowdfunding platforms. Here are some frequently asked questions (FAQs) about business loans for MSMEs: 1. What is MSME stands for? The Government of India recognizes the value of the contribution of the MSME sector. There is a dedicated ministry working on this segment. As per the Ministry of MSME, Micro Enterprises are those with an investment in plant and machinery of not more than Rs. 25 lakhs. Small Enterprises are those with an investment in plant and machinery of more than Rs. 25 lakhs but less than Rs. 5 crores. Medium enterprises are those with an investment in plant and machinery of more than Rs. 5 crores but not exceeding Rs. 10 crores. 2. Who is eligible for MSME Loan? There is a standard definition given by the government of India. Stabilized business operating for over 6 months. Minimum turnover of Rs 90,000 in the last 3 months. Business not blacklisted/ejected for SBA finance. Business location is not on the negative location list. Trusts, NGOs, and charities are not eligible for loans. If you are not aware that your business falls under a restricted category or location, you can reach out to confirm your eligibility. 3. How to apply for MSME loan? If you are looking ahead to avail and make the most out of this ambitious initiative by the management, you must consider Terkar Capital for availing of the MSME Loan Scheme. We are a trustworthy lending institution. Even if you are uncertain about the scheme; our executives will explain to you the complete procedure, client privacy, and requirements are prioritized here and it has been helping such small and micro enterprises to flourish over the years. 4. How MSME loan is used? MSME loans can be used for starting or expanding a business, acquiring assets, meeting working capital requirements, trade finance, introducing new products, and other eligible purposes. 5. What is MSME interest rate? MSME loans typically have lower interest rates than other types of loans. However,  Interest rates vary depending on the lender, loan type, loan amount, and creditworthiness. It’s important to compare rates from different lenders before making a decision. 6. What documents are required for an MSME loan application? This can vary by lender, but common documents include: KYC documents (proof of identity and address) Business Documents Business incorporation certificate Financial documents (As required) 7. How long does it take to get an MSME loan approved? This depends on the lender and the complexity of your loan request. Unsecured loans with minimal paperwork may be approved faster. 8. How Terkar Capital Helps in getting business loans for MSME? Terkar Capital recognizes the importance of the MSME sector and offers business loans to MSMEs without the need for security. So, with a highly skilled and dedicated team, we ensure to fulfil our client’s needs and requirements. We arrange multiple financial instruments for our clients with the best interest rate options. However, the relationship doesn’t end with the sanctioning of the loan. We maintain to have a lifetime relationship with the customer to be of help whenever required.

What is LRD loan? LRD full-form lease rental discounting is a type of term loan. It is a type of secured debt funding that is offered based on the rental income of the property. The property must be leased for 5-10 years. And the lessee or tenant should be a well-known brand. Understanding What is an LRD Loan in India Overview – LRD Loans (Lease Rental Discounting) The leased properties can source you funds!! Yes, you read it correctly. The leased properties can, however, give you funds. It can be used for either expansion, purchase of assets, or paying off other loans. Such loans can be obtained through a debt product called Lease Rental Discounting (popularly known as LRD). Let us understand the LRD loan facility in detail. Benefits of LRD loan LRD loan serves as a multi-purpose loan and can use the funds for business expansion, financing for the purchase of an asset or new property, or paying off loans. The owner of the property does not have to pay the bank, but in return, the tenant of the property directly pays the bank the loan in the form of rental receipts through an escrow account every month. This facility gives a long-term solution to cash flow management as the lease/repayment is for longer tenures. The Rate of Interest in LRD depends upon the value of the property, repayment tenure, the credibility of the lessee, etc. LRD loan Eligibility There are no fixed criteria for eligibility, as it differs from institution to institution. Below is the most preferable one. 1. Age criteria: The applicant must be 21 years or above but not more than 60 years in the case of a salaried person and 65 years in the case of a self-employed person. 2. Criteria for Borrower: The borrower must possess a property which leased to a known brand or corporates. The loan has provided to salaried individuals, professionals or even self-employed. 3. Lease Agreement Period The lease agreement period is very critical. An important factor for taking a lease rental discounting loan from a bank or NBFC. The bank may or may not provide a loan if the lease period is less than 5 years. This loan is given to rented properties with leases of 5 to 10 years. 4. CIBIL score: LRD loan provides a loan to a borrower who has a creditworthy CIBIL score. CIBIL score and track record are the decisive factors for sanctioning or rejecting major loan applications. Pre-requisites to Lease Rental Discounting The following prerequisites should consider before applying for LRD Loan. a. Corporate Tenants: The tenant for the LRD loan should be financially fit to meet the obligations of the bank. That allows banks to ascertain whether or not future payments are likely to come. The banks only discount lease rentals belonging to renowned corporations or brands with a good credit rating. b. Longer repayment period: Secondly, the tenure of LRD is usually between five to seven years or can even go up to 10 years. Banks generally do not make short-term lease rental discounting loans. It is for this reason that the amount of loans and the repayment period is usually large. That is not possible to get paid off within small tenures. Thus, LRD holds larger tenures of repayment. c. Repayment Criteria For the repayment of the loan, an escrow account is created. There is the participation of two or more parties like the borrower, tenant, and banker. The tenant will ask to transfer their rent to this account. The EMIs will be withdrawn from the same. How is a Loan against Property different from Lease Rental Discounting? A loan against Property is the borrowing of a loan against the whole property as collateral and getting funds against the loan. LAP utilizes the higher amount of loan against the value of your property and can use the same for business purposes. Whereas, in the Lease Rental Discounting, you get only a certain amount of loan against the lease amount the lessee will pay. So, the loan is provided against future expected rentals which should have a fixed and regular rental receipt. Understand the LRD Funding Process through a case study. Process to avail LRD loan facility Why choose Terkar Capital? Lease Rental Discounting (LRD) is a financial product that enables individuals to obtain funds by leveraging their leased properties. The loan is offered based on the rental receipts of the property, with a lease period of 5-10 years and a well-known brand as the tenant. LRD loans provide flexibility for business expansion, asset purchase, or loan repayment, with the tenant directly paying the bank through an escrow account.

Overview: Collateral-based Funding for Business If you own a business, you might need funds to effectively guarantee the smooth operation and management of your business. Such funds can be raised by either opting for a secured loan or an unsecured loan. You may also need to offer collateral to approve the loan application. But what exactly is collateral-based funding for businesses? What is Collateral-based funding? Collateral-based funding refers to the process of securing a loan by offering assets or properties as collateral to the lender. This collateral acts as a form of protection for the lender, assuring that the loan will be repaid. A Collateral may take the form of real estate, inventory, or other kinds of assets. It depends on the purpose of the loan. By leveraging collateral, businesses can facilitate secured debt products that come with several advantages. Such as lower interest rates and more favourable terms. For Example – Let us suppose that Mr Raman owns a business. He needs a fund for expanding the same. He also owns a property that is registered in his name. In such a case, Mr Raman can use this property as security against the loan. Thus, He secures a loan against the property in this case. Types of collateral The following are the types of collateral used to avail funding: 1. Real Estate The borrowers maximally use real estate assets as collateral. Eg building, apartment, premises, flat, or bungalow. The land is also used commonly as collateral. 2. Equipment or Machinery The borrowers can, however, obtain loans against the equipment as well as machinery by keeping them as collateral against loans. 3. Inventory financing The manufacturing companies can have a crore of rupees in stock which has to be kept idle till the time it gets converted into cash. Also, the turnaround time for converting to cash is high. In such a case, the inventories can be kept as collateral for acquiring funds. 4. Invoices (unpaid) The unpaid invoices. i.e., the outstanding invoices are commonly used as collateral. In the cases of Bill discounting and Factoring, such invoices get discounts. So the fund availed against them. How does collateral-based funding work for businesses? To avail of a collateral-based or secured loan, one must possess a tangible and lawful asset such as a mortgage. So, Unregistered or unlawful assets are unlikely to get funding, as unsecured debt products do not require collateral for securing funds. Next is the valuation of the property, whether the property serves the purpose of the required amount. Since the volume of funds depends upon the value of the mortgage asset one cannot get funds beyond that. The loan has been given based on the fair market value of the property. The benefit of collateral-based funding Funding is given against the assets. It includes fixed and tangible assets like land, buildings, machinery, etc. Lower interest rates as compared to collateral-free loans. More flexible tenures and repayment options than regular loans. Faster approval process. Difference between Collateral and Security Collateral and security are distinct concepts. Collateral refers to any fixed or tangible asset, such as land, buildings, property, and machinery, which the borrower provides to the lender as security for the loan. The ownership of the mortgage asset remains with the lender until the borrower completes loan repayment. Whereas, security refers specifically to financial assets (such as stock shares). That is collateral against loans. These include bonds, futures, swaps, options, and stocks. Conclusion When seeking funding secured by collateral for your business, Terkar Capital stands as your dependable partner. We offer diverse financial instruments crafted to suit the unique requirements of our clients.  To ensure a comprehensive funding solution, we conduct a diligent evaluation of your financial SWOT analysis, business plans, industry trends, sales metrics, and credit scores. With Terkar Capital, you can rely on collateral-based funding that fosters the growth and success of your business. Get your Free CIBIL Score & Report instantly.

Debt Funding Overview For starting, expanding, or running a business, funds are of prime importance. These funds can be raised in two ways, debt funding and equity funding. Equity Funding is raising finances by selling the shares of a company. Moreover, debt financing occurs when a company borrows money to be paid back at a future date with interest. This is available in both secured and unsecured funding. The funds can be sourced through Banks, NBFCs, or Financial Institutions. However, there are certain myths and misconceptions associated with how to obtain debt funding. Below are a few of them: 1. Funding requires high collateral Traditionally, debt instruments are used to come up with collateral. But now it can be availed even without collaterals. The collateral-free unsecured loans may have more interest rates as compared to secured ones. In the case of secured funding, the amount of collateral and the amount of loan should match. Whereas, in the case of unsecured loans, the funds are even disbursed based on the credit score of the borrower and his relationship with his banker. 2. The process of funding takes a longer time The funding procedure depends upon various factors. The lender has to submit a variety of documents like KYC, financials, and specific documents. Even though the process looks lengthy, we arrange it as fast and quickly as possible. Now the clients do not have to wait for months for disbursement, it can be done in merely days. 3. The lower amount only financed The clients now can avail the higher number of finances too. The only restriction is eligibility. Once the client has a creditworthy score and fits into the eligibility criteria, the higher amounts can also be availed through both secured and unsecured ways.  4. The ROI is high in case of unsecured funding The ROI majorly depends upon the availability of collateral, CIBIL score, and other economic criteria. The higher the ROI, the greater will be the risk, and the lower the ROI, the lesser will be the risk. Hence, the ROI totally depends and changes from case to case. 5. Debt funding come up with heavy risk The loans used to be risky earlier. Today if you are doing it with the right lender, then there is no need to worry. We at Terkar Capital help to bridge the gap between eligible borrowers and capable lenders. We understand the need and requirements of the clients and work accordingly with arranging a quality and transparent procedure that vanishes the risk in funding. 6. Fewer products available in debt funding This is not the truth, as there are several debt products available in the market that one can opt for and avail of such services. There are conventional as well as non-conventional debt funding options. The products are chosen to depend upon the financials and credit scores of the clients. 7. No flexibility in funding The debt funding has flexible options to carry out. Also, many services provide smooth repayment options which makes the funding work hassle-free. 8. You cannot use mortgaged property or assets. Most borrowers worry whether they can or cannot use the mortgaged property. Moreover, the property for a mortgage is either a residential or commercial one, which can not keep vacant or unused. As long as the borrower does not default on his or her loan payment EMIs, he or she can absolutely use the mortgaged property. Understand the execution of Debt Syndication here. Why Choose Terkar Capital? We at Terkar Capital understand the customer’s needs, strengths, and weaknesses. Concerning the edges, we arrange appropriate financial instruments. Our trained executives will assist you in the entire procedure while applying for loans. Even after the disbursement of the loan, if the client faces any issues, we are available to help until the end of the tenure of the loan. We have expertise in the analysis of the market and offer a reasonable ROI to borrowers. So whenever it is raising finance, it’s Terkar Capital!!

Machinery Loans for Businesses of all Scale In today’s rapidly evolving business landscape, staying abreast of new technologies is essential for growth. To achieve this, businesses must adapt to the changing environment by updating their existing operations. One approach is to invest in the latest machinery to enhance production capacity. Alternatively, businesses can opt for expansion to increase their reach and market share. To facilitate these investments, businesses can leverage machinery loans offered at competitive interest rates, with or without collateral requirements. Machinery finance helps MSMEs acquire new or replace damaged machinery, boosting sales and profits. Explore FAQs for a deeper understanding of machine loans. How important are machinery loans? India’s numerous Micro, Small, and Medium Enterprises require costly machinery for manufacturing. Machinery finance helps businesses afford these tools, boosting productivity. Is it possible to obtain a machinery loans without security? Many institutions fund based on collateral. But we arrange the funding in both secured as well as unsecured ways depending upon the availability of collateral with the borrower. Here’s a guide to avail of machinery loans without security. What is the maximum duration for repaying? The tenure/repayment period of a machinery loan majorly depends upon the amount required for purchasing machinery. It can be availed for short as well as long term. Mostly the tenure is more than a year and can even go up to 5 years. How much interest is applicable on machinery loans? The interest depends on the availability of the mortgage. That is, whether the loan is secured or unsecured. So, if the borrower possesses the mortgage, the ROI applicable will be lesser. Whereas, in unsecured loans, the ROI will be higher as compared to the secured ones. Terkar Capital arranges both products at a reasonable rate for our clients. Who can apply for machinery loans? All eligible businesses can apply for machinery funding. The business engaged in manufacturing will require machinery majorly and therefore can opt for the same.  What is the procedure in Machinery Funding? 1. Know the requirement The first step is to understand the requirements of the client. This includes the details of machinery, the amount required, etc. 2. Check the eligibility Further, we check whether the client fits the eligibility criteria or not. The prime factors required for eligibility criteria are the age of the applicant, business vintage, turnover/earnings, and credit score. 3. Put forth the proposal After analyzing the above steps, we find an appropriate lender for putting forth the proposal and approving the acceptance. 4. Fulfil the documentation The first step is to understand the requirements of the client. This includes the details of machinery, the amount required, etc. 5. Get the funds Finally, after completing all the above steps the funds will be transferred to the client and he can use the same for financing machinery. Terkar Capital for machinery finance The following are the benefits that we provide to our clients: We arrange funding, even for the larger amount of machinery. We offer machinery loans in both secured and unsecured ways depending upon the availability of collateral with the borrower and his credit score. Terkar Capital maintains confidentiality and transparency in the process. We are one of the top machinery finance companies, offering you convenient access to funds. We arrange a wide range of lenders and choose the best suit for the borrower as per his needs. Our team of experts constantly guides the client and makes their procedure convenient.

Bill Discounting Bill Discounting is a method of trading. The seller gets the amount in advance before the maturity of the bill at a smaller amount than its actual. That is at a discounted rate. The process can be executed with banks or even with Financial Institutions and NBFCs. The reason for discounting is mostly for the working capital requirements. In simple words, It can also be termed as Short Term Loans against unpaid bills on accounts receivables. 1. Is Bill discounting a type of loan? BD is a type of invoice financing where the borrower gets the loan against unpaid bills. In simple words, they are short-term business loans. Learn bill discounting in detail. 2. How is the Bill Discounting interest calculated? The interest calculation is as per the terms of the lending bank or financial institution. It considers the credit period or the tenure of the bill. That may be 30 days, 60 days, 90 days, etc. as the case may be. 3. Who provides Bill discounting services? Generally, banks provide this service. But nowadays NBFCs or Financial Institutions also offer these services. It is a convenient process. Because documentation is less and eligibility criteria depend on the creditworthiness of the borrower with the bank as well as the credit score of the debtor. 4. What is the repayment period for Bill Discounting? The repayment period is the credit period decided as per the agreement between the parties, the buyer and seller. The period of the bill will get over on the maturity date or repayment of money against the bill, whichever is earlier. 5. What are the advantages of Bill Discounting? It is a fast and convenient process. Also, this financial instrument makes immediate availability of funds to the seller, which does not stop his operations of the business. 6. What is the procedure of bill discounting? A. The seller sells goods on credit to the buyer. He issues a bill of exchange to the buyer. Thus, the buyer accepts it and acknowledges the bill. The buyer states his credit periods and resends them to the seller. B. The seller then goes to the bank and discounts the bill. Here, the credit score or the seller-banker relationship has been checked. C. The Bank transfers the amount, deducting the discount in favour of the seller. D. The seller then uses this amount till the end of the credit period. E. Lastly, when the credit period is over, the bank collects the payment of the bill from the buyer/payee. The payment of the bill can be done at any time in the credit period, but not after maturity. If the buyer/payee is unable to pay the amount of the bill, the seller makes the payments or the specified person as per the stated agreement. Understand the bill discounting process from the case study. 7. Is CIBIL score important? Traditionally, financial instruments are used to come up with some sort of securities. But today they even availed themselves without security. If BD is availed through an unsecured way, CIBIL and the relationship with the banker are primarily checked. 8. What are the methods of presenting Bill Discounting? There are two methods included in Bill discounting, namely: Resource and Non- recourse. Recourse: In this method, the examination of all the documents is on the seller’s bank. After a thorough investigation, they send the same for checking to the buyer’s bank. Here, the seller or the seller’s bank is responsible for any mishap in the whole process. Non-recourse: This method is contrary to the previous one. Thus, the buyer’s bank examines the documents and raises a bill against the seller. The buyer here will be held responsible for any default in the process of bill discounting. 9. How does Terkar Capital helps? Terkar Capital provides a bill discounting facility in India. We work exclusively for raising finances from all sources.  We arrange both debt and equity funding. Terkar Capital has expertise in market strategies that provide facilities with ease. Bill discounting is one of our finest services. Our team of experts helps effortlessly to arrange all the possible outcomes to make the process easy and convenient. 10. What is the process to avail of Bill Discounting?

Bank Guarantee Every business needs a backbone of funds. It is for its effective operations and to maintain the competition in the market. Moreover, there are several debt instruments available for funding. While Bank Guarantees are used the most. In this article, we’ll shed light on what a BG (bank guarantee) is, its key features, its process, and how it differs from the Letter of Credit.  What is BG (Bank Guarantee)? The bank guarantee is a commitment provided by the buyer’s bank. It ensures that if the buyer fails to fulfill their obligations or make the payment, the bank will step in and make the payment up to the specified amount mentioned in the guarantee. The financial institutions offer a Bank Guarantee (BG) as a financial instrument. However, the lender will ensure that the liabilities of a debtor will be met. In other words, the lender promises to cover a loss in case the borrower defaults on the loan. In the process of BG, four parties are involved in the transactions. Those are the applicant/ borrower, the issuing bank, the beneficiary, and the beneficiary bank. Features of Bank Guarantee BG builds confidence between the lender and the borrower. It adds assurance to the transaction between an exporter and an importer. The primary reason for opting for BG is that, many times, the exporter and importer are unaware of transacting with each other. So, there can be a risk in the transaction. Hence, to overcome this risk, a Bank Guarantee clears the hurdles. The BG obtained for a specified period. It is as per the needs and requirements of the borrower. The applicant can hold the BG only up to a specified period, they can further renew it after maturity. The bank guarantee can or cannot hold assets against the instrument. The collateral depends upon the availability of the asset and the terms & conditions of the agreement between the lender and the borrower. It is also obtained without collateral. Parties Involved in the Bank Guarantee Process The applicant (importer): who requests BG from his banker as per the demand from the beneficiary The issuing bank: as per the request from the applicant, the bank issues the BG on the beneficiary’s bank. The beneficiary (exporter): is the party who demands BG. The beneficiary’s bank: is the one who receives the BG on behalf of the beneficiary. How does a bank guarantee work? Example “ABC Pvt Ltd” is an exporter company that deals with “XYZ Pvt Ltd”, and is an importer. The exporter shipping goods requests the importer to get the Bank Guarantee from their banker. The banker on demand from the customer applies for a BG and reduces the risk involved in the transactions. After receiving the BG, the applicant submits a copy to his other party, which eases the procedure in the business operations. Here, “XYZ Pvt Ltd” is the applicant, the bank is the issuing party, and “ABC Pvt Ltd” is the beneficiary. In case of non-performance or default, the beneficiary can submit a claim to the bank.  The bank evaluates the claim and, if valid, settles the claim by making a payment or fulfilling the obligation as specified in the bank guarantee. Apply for BG Instrument The parties, while transacting with each other, the exporter demands a BG from the importer. The importer requests his bank for the BG and submits the necessary documents. After preparing the BG, the bank communicates the same to the importer. The importer then requests the bank to send the BG to the exporter’s bank. The exporter’s bank, on receiving BG, communicates the same to the exporter. The exporter then ships the goods towards the importer after receiving the BG from the importer. Here is the case study of the Bank Guarantee Process. Difference between a Bank Guarantee (BG) and a Letter of Credit (LC) In the case of BG, payment has been made only in case of a default of the buyer. And, in the case of LC, payment has been made on behalf of the customer after receiving the goods. In the case of BG, payment is made at the non-fulfilment of the transaction between the parties. Whereas the LC payment is made only after the fulfilment of the condition specified. To learn the difference in details Read here.  Terkar Capital: Bank Guarantee Provider At Terkar Capital, we specialize in assisting aspiring entrepreneurs and providing them with seamless funding solutions. While a Bank Guarantee is among them. We understand the unique needs and expectations of our clients, and accordingly, we arrange and offer a wide range of financial products. Our team of experts is dedicated to guiding clients through every step of the funding process, ensuring their success while maintaining strict confidentiality.

What is Overdraft Facility? For businesses navigating the complexities of financial management, access to timely funding is crucial. One such instrument designed for short-term needs is the overdraft facility. Essentially, an overdraft facility meaning allows businesses with current accounts to withdraw funds exceeding their available balance, up to a pre-approved limit. Consequently, this od facility serves as a readily available source of finance to bridge temporary cash flow gaps. Most financial institutions offer a company overdraft facility, with the sanctioned limit and interest rates determined by the bank’s assessment. This form of finance can be either secured, backed by assets, or unsecured. Businesses, ranging from sole proprietorships to larger enterprises, can leverage this option. OD Facility Example To effectively manage your money, it is critical to understand the concept of an overdraft. So, let’s simplify using the example below: PQR Private Ltd, a company with a current account at XYZ Ltd Bank, has a credit balance of Rs 750 Lacs. The company needs to make a payment of Rs 820 Lacs to one of its vendors. After analyzing the expenses, the company realizes that it needs additional cash to make the payment. Hence, the company approaches its banker and applies for an overdraft of up to Rs 850 Lacs. The banker approves the application at a reasonable ROI. Thus, the company can now use the overdraft amount as and when required and will pay interest on the amount used above the credit balance. Overdraft (OD) Terms The terms of a loan may vary depending on the borrower’s profile, repayment capacity, relationship with the banker, financial history etc. Features of OD Facility The overdraft facility helps in the effective working capital management of the company. It solves the immediate cash crunch. Also, It gives flexible repayment options to the current account holders. The credit limit depends upon the relationship of the borrower with his banker and also his credit score. Generally, the credit period is 12 months. Thus, the borrower has to renew the facility according to their requirements. The interest is charged only on the extra amount used. Other than the credit balance of the bank account which varies as per the amount of the Overdraft. The repayment of the OD is not done through EMIs. However, the borrower can pay as and when he is available with cash but before the end of the credit period. How to Maximize Your Overdraft Facility? The OD facilities can be a helpful way to manage your finances, but it’s important to use them wisely, as they can be expensive. Here are some tips for maximizing your overdraft facility and avoiding unnecessary fees: Only use your overdraft facility for short-term expenses. Make sure you have a plan to repay your overdraft as soon as possible. Shop around for the best overdraft deal. Consider using a credit card instead of an overdraft facility. Be aware of the fees associated with overdrafts. Learn more about the dropline overdraft facility here. Overdraft facility at Terkar Capital We facilitate access to overdraft facilities, streamlining the application process for eligible businesses seeking flexible funding solutions. Therefore, understanding the nuances of an overdraft facility is vital for effective financial planning and ensuring business continuity. As a result, the below overview provides financial decision-makers with a clear understanding of the overdraft facility’s meaning, its benefits, and practical applications within the Indian financial landscape. # Particulars OD Facility Min Amount (Rs. INR) 25 Lacs Max Amount (Rs. INR) (No capping) Rs. 100 cr + ROI Repo Rate Linked Tenure Revolving   FAQs 1. What are the eligibility criteria for an OD facility? There are no set criteria for eligibility. It varies from lender to lender. But factors like the borrower’s age, credit score, earning/turnover, and relationship with a banker are considered majorly. 2. What is the procedure for obtaining an OD facility? A borrower applies for an OD facility. The bank checks their credit score, relationship with the bank, earnings, and eligibility. If approved, the OD is sanctioned. 3. Who can avail of the OD facility? Current and savings account holders can get an overdraft facility from their bank, depending on their relationship with their banker. Individuals, self-employed professionals, and enterprises can be borrowers. 4. Is there any requirement for collateral? Collateral depends on the borrower’s availability and whether they have it. Interest rates are comparatively higher for unsecured loans. 5. Who offers the overdraft facility? Almost all banks provide OD facilities to their saving and current account holders. Nowadays, financial institutions also provide such a facility. 6. How long can the bank account be overdrawn? The time duration of the overdraft depends upon the agreement between the banker and the borrower. Generally, the facility is provided for 12 months and has to be renewed at maturity.

Letter of credit discounting To ensure the smooth running of your business operations daily, it is crucial to have sufficient working capital. This means that your company may need to consider obtaining loans, either in the short-term or long-term. In the past, all the loans obtained were secured, but now we have a range of options, including both secured and unsecured loans. Let’s focus on one particular working capital instrument called Letter of Credit (LC) discounting. Overview A banker issues the letter of credit as a financial document. In this Bank gives a guarantee to pay the seller for the buyer’s obligation, In case a buyer fails to make the payment. Hence, LC discounting takes away the risk. LC gives assurance to the seller of the funds. It is an unsecured debt product used in international trade. Mainly where the buyer and seller are unknown and have to risk in a transaction between each other. There is involvement of major 4 parties in such a transaction. Namely: Exporter, Exporter’s Bank, Importer, and Importer’s Bank. A buyer and seller both request LC. So, both of them mutually decide the terms and conditions. Features of LC discounting It speeds up cash flow and improves working capital management. It mitigates transaction risk and assures both parties. The LC is discounted once the buyer’s payment is verified. LC is available for both domestic and international customers but is primarily used in international transactions. Strong relationships between exporters and importers facilitate smooth LC discounting operations. Following are the benefits to the parties. A Seller gets immediate cash flow for his business. A buyer gets a credit period for making payments. The bank receives interest for the said services. Letter of credit discounting Process In the case of a manufacturing or trading company, the sellers may require funds immediately. He cannot wait for the due date. So, in such a case, LC Discounting plays a major role in assistance to the eligible sellers. Here’s a general process: Buyers on demand from the seller request a Letter of credit (LC) from the respective banks before the shipment of goods. And send the same to the seller/exporter bank. The exporter bank checks the document and communicates the acceptance to the seller. The exporter receives the Letter of Credit and requests it for discounts. Hence, the bank discounts the LC after deducting the charges or discounting fees. The exporter gets the money and uses the same for his business expenses. Learn the process of LC discounting from the case study. Example Let us suppose that “ABC Private Ltd” company engaged in manufacturing situated in India. The company receives an order of goods from a foreign country “XYZ Private Ltd”. It is asking for a credit period of 60 days for the payments of goods. Being unknown to each other, “ABC Pvt Ltd” demands a Letter of Credit from “XYZ Pvt Ltd”. It sends it for confirmation to “ABC Pvt Ltd”. It will check the letter and accept it. And can discount the same. Thus, by discounting the LC, the seller will get immediate cash flow. So, he does not have to wait till the end of the credit period. LC discounting at Terkar Capital Terkar Capital facilitate a letter of credit discounting. This financial instrument provides working capital to businesses without the need for collateral. In a letter of credit discounting, a bank issues a guarantee to pay the seller if the buyer fails to make the payment. This reduces the risk for both parties involved in international trade transactions. LC discounting improves cash flow and working capital management for businesses while ensuring a smooth transaction process. Both domestic and international customers can benefit from letters of credit, and it helps build a strong relationship between exporters and importers. FAQs on Letter of Credit Discounting 1. Can businesses transfer a letter of credit? Yes, a letter of credit can be transferred. There is a special kind of LC which is called a transferable letter of credit. It includes a transferrable provision. Transferable LC additionally allows the first beneficiary to transfer some or all of the credit to another party, which creates a secondary beneficiary. 2. Is a letter of credit discounting safe? A Letter of credit is one of the safest options and is most commonly used in domestic and international business transactions. In fact, the exporter or importer, who are unknown to each other from different locations at such times the buyer’s creditworthiness can be checked through LC. So, it is a safe and widely used working capital instrument. 3. Can a letter of credit be canceled? There are various types of LC, depending upon which can or cannot be cancelled. For example: A revocable letter of credit can be cancelled or amended by the issuing bank at any time and without prior notice to or consent of the beneficiary. An Irrevocable Letter of Credit cannot be cancelled or amended without the consent of all parties concerned. 4. How does a letter of credit discounting work? A letter of credit is a letter issued by a bank guaranteeing that the seller will receive the payment from the buyer on time with a given amount and in case the buyer fails to make the payment, the bank will be paying the amount to the seller. So, it works like a trust factor between importer and exporter. 5. Who can issue a letter of credit? Issuing bank (importer’s bank) which issues the LC when an applicant (importer) requests the bank to issue the LC. Generally, LC with a well-rated bank is accepted. 6. What is the expiry date of the letter of credit? The last date to submit the exported documents with the bank for negotiation of documents is called LC expiry. Here, the exporter needs to submit all required documents with the bank after export as per the guidelines mentioned in the letter of credit. This means if shipped goods before the date mentioned in LC for shipment, the Letter of