Guide to Unsecured Business Loans Unsecured business loans are financial products designed to provide businesses with capital without the need for collateral. Unlike secured loans, which require borrowers to pledge assets as security, unsecured loans rely on the creditworthiness of the borrower. This means that the lender assesses the risk based on various factors, including credit history, business performance, and financial health, rather than on tangible assets. This type of financing is particularly appealing to entrepreneurs who may not have significant assets to offer as collateral but still require funds to pursue growth opportunities. Tips for Improving Your Chances of Approval To enhance your chances of securing an unsecured business loan, there are several proactive steps you can take during the application process. First, ensure that your credit score is in good standing. The fund houses typically require a credit score of at least 720, so check your credit report for any inaccuracies or issues that may negatively affect your score. Another strategy is to keep your financial records tidy. Lenders want to see proof that your business is financially sound. So, get your profit and loss statements, cash flow projections, and a detailed breakdown of how you plan to use the funds. Clear documentation will boost the lender’s confidence and show that your business is responsible. Finally, consider approaching your loan application with a strong business plan that outlines your vision and strategies for growth.  So, tailoring your business plan to highlight how you will use the loan funds effectively can significantly improve your chances of approval. Unsecured Business Loans Advantages No collateral is required, to protect the borrower’s assets. Appealing for startups and businesses in volatile industries. Enables businesses to obtain funds quickly to seize growth opportunities. Funds can be used for various purposes (inventory, marketing, hiring, operations). Beneficial for small to medium-sized businesses needing to adapt to market changes. Timely repayments can improve a business’s credit profile for future financing. Eligibility Criteria for an Unsecured Business Loan The Financial institution assesses several factors before approving an unsecured business loan: A strong credit score for both the business owner and the business itself is crucial, with 720 being a common benchmark. A strong credit score indicates financial responsibility and reduces the perceived risk for the lender. Some financial institutions may accept lower CIBIL for well-established businesses. Funding houses require proof of income and a detailed overview of the business’s financial statements, including profit and loss statements, cash flow projections, and balance sheets. A business should demonstrate consistent revenue, positive cash flow, and a solid growth trajectory. Many lenders prefer established businesses with at least 2-3 years of operation. Documents for an Unsecured Business Loan Application Individual KYC, Business KYCs Business registration documents Profit and loss statements ITR (personal and business) Bank statements (past six months) Learn the Unsecured Business Loans Process from the case study. Avoiding Unsecured Business Loan Application Pitfalls When applying for an unsecured business loan, research potential lenders thoroughly. Different lenders have different criteria, interest rates, and terms. Choosing one that aligns with your needs and financial situation will increase your chances of approval Underestimating the importance of a strong credit score is a common mistake. Lenders consider both personal and business credit scores when making decisions. Neglecting your credit score can lead to rejection or higher interest rates. Additionally, some applicants fail to provide complete and accurate documentation. Incomplete applications can lead to delays or outright denials. Ensure that you gather all necessary documents, including financial statements, tax returns, and a well-structured business plan. Taking the time to present a comprehensive and organized application can make a significant difference in the lender’s perception of your business and its viability. Alternative Funding Opportunities If an unsecured business loan isn’t the right fit, consider: Secured Business Loans Business Lines of Credit Working Capital Loan Machinery Loan/Machine Refinancing  Private Debt and so on… We cater for arranging financial instruments tailored to your unique business funding needs. Our expert team offers comprehensive financial consulting for various instruments, ensuring you have the support to make informed decisions. Conclusion Unsecured business loans provide a valuable opportunity for businesses seeking funding without collateral. By understanding eligibility, preparing a strong application, and exploring different fund houses, businesses can secure the funds needed for growth. Evaluate your financing options carefully and choose a solution that aligns with your business goals. Check your CIBIL score for free.

Overview Having a hard time managing your finances? Rapidly accumulating debt used to be a cause for concern. But times have evolved, and borrowing money and making regular payments has become a common practice in a society driven by consumerism, which forms the basis of economic advancement. A business doesn’t solely rely on debt to address its deficits; it also utilizes it to thrive, expand, and fulfil unexpected needs. In fact, there are numerous financial benefits associated with business debt. Here are the financial benefits of business debt 1. Scaling up your business When you have cash flow, your enterprise is exposed to more opportunities like promoting itself and using effective marketing strategies. The funds can also be used for the acquisition of equipment and facility purchases. It can expand its range of product offerings. Money supply gives a chance for a business to spread its geographical boundaries. It helps in growing business in all aspects, i.e., finance, manpower, and technology. 2. Building Credit Score 35% of your credit score is based on your repayment history. The creditworthiness of the company can be enhanced by taking out a business debt. But to raise your credit score, you must ensure that debts and EMI payments are made on time and by the specified date. This will enable you to obtain additional funding in the future at a reduced cost. Learn the key factors affecting your CIBIL score here. 3. Leveraging Debt-Equity Ratio The debt-to-equity ratio evaluates your company’s overall debt in relation to the capital that the owners initially invested and the profits that have been held over time. A higher D/E ratio among firms of a comparable size denotes greater risk, whereas a very low one can signify that a company is not utilizing debt funding for expansion. Compared to share capital, debt is also a preferable source of funding for a successful organization since it allows for more leverage. An investor for your business might expect profits but in the case of a debt, you just need to pay a fixed sum to the lender. You get benefits from the excess rate of return above the borrowing interest you pay. A large business debt also provides us with leverage by paying off minor creditors. You might not have to deal with as many parties if you combine several minor debtors into one large one. 4. Managing Cash flow A business has several challenges, like managing clients who don’t pay for services and having unsold inventory that needs to be moved to bring in new items. Cash flow is one of these issues. The frequent expenses for your workers, merchandise, utilities, rent, or mortgage make these problems much worse. A short-term debt might help your company survive lean times by giving you money to cover routine operating expenses. You may continue to bring in new clients to increase income and offset other losses by keeping money moving through your company. 5. Tax benefits Taxes for your business might be costly. If not paid properly, your company’s prospects and financial security are in jeopardy. You may also avoid some taxes by using business financing such as taking a debt. This is so because the Income Tax Act has provisions stating that the portion of earnings used to pay back the debt amount is tax-exempt. Thus, it serves as a useful tool for Enterprises to reduce their tax obligations and use the money saved for company growth. 6. Emergency Fund Requirement When an unexpected occurrence has had a detrimental impact on your firm, you might employ an emergency business loan. If a lender is persuaded that you will stick to the agreed-upon repayment schedule, they will provide a loan for the following reasons: short-term expenses for marketing or advertising to assist with running costs (staff wages, bills, rent) You might utilize an urgent business loan to bridge gaps brought on by cyclical market times to support seasonal firms. To cover unforeseen costs, such as debt repayments and insurance payouts 7. Funding Support Even it is collateral Unsecured and secured debts are the two different categories of debt. Taking up a secured debt entails pledging an asset as collateral. Holding an asset as collateral brings additional funding for your business which will have considerably more time value of money than monthly instalments, it can be helpful to expand your business operations. The debt amount is determined by your requirement and can cover any additional expenses coming as an obstacle to a big opportunity for your business. Business Debt Funding at Terkar Capital Business debt can bring several financial benefits. Firstly, it allows for business expansion, enabling opportunities for marketing, equipment acquisition, and product diversification. Additionally, taking out business debt and making timely repayments can enhance your credit score, facilitating future funding at lower costs. Leveraging the debt-equity ratio can help your business grow and manage risk effectively. Moreover, business debt assists in cash flow management during challenging times and offers tax benefits. Finally, it can serve as an emergency fund and provide funding support, whether secured or unsecured.

Overview The unsecured debt products enable the borrowers to raise funds without pledging any asset as collateral. Lenders impose the qualifying requirements of these instruments for funding the borrowers. The interest rate for these loans fluctuates according to various criteria. However, It includes the applicant’s credit history and monthly income.  Unsecured debt interest rates depend on financials, banking, industry type, and current market fluctuations. As it is unsecured funding the interest rates are at a bit premium as compared to secured funds. Unsecured debt instruments Unsecured debt instruments are essential tools used by many businesses in India to raise funds and address unforeseen short-term expenses as they continue to grow. These instruments include Trade Finance, Term Loans, Overdrafts, Cash Credits, Bill Discounting, Factoring, Bank Guarantees, LC Discounting, CTGSME, and Working Capital Loans. This loan type is extensively used by many businesses in India to cover any short-term unforeseen expenses that can occur as they grow. Get up to 10 Cr in Unsecured Debt Funding. The ROI begins at 14% PA (Subject to Financial Ratios). Global market scenario After the unprecedented challenges on account of the covid 19 pandemic in both FY 2021 and Q1 FY 2022, the lending landscape in India has shown remarkable recovery for the remaining part of FY 22. As per the reports, the Global Unsecured debt market in 2022-2026 is poised to grow by $ 5. 85 billion during 2022-2026, accelerating at a CAGR of 16%. It also identifies the key driver for the unsecured debt market, i.e. increasing number of SMEs. Unsecured funds are becoming more online and quicker. Advanced technologies are used in the process, leading to a large increase in demand. Indian Market Scenario In India, overall business loans provided Rs.621.1 thousand crores in the financial year 2022. Reserve Bank of India showed that bank lending to such companies increased 26% year-on-year in October. Financial companies other than banks also provide loans to such companies. Thus, a total of 11.6 million MSMEs received new loans in FY2022. Unsecured business loans granted by NBFCs also jumped 36% year-on-year in the second quarter of FY23, according to data from the Finance Industry Development Council, an industry body for NBFCs. The average loan made to a medium-sized enterprise stood at Rs. 1.4 crore in the final quarter of FY22.  Loans to small and micro-sized businesses, had a ticket size approximately of Rs.59 lakh and Rs.9 lakh, respectively. When it comes to the fulfilment of capital market needs, it becomes a more complex and time-consuming process due to the wider range of options available. Therefore ‘The Global unsecured business loans market is bifurcated on the basis of Type of enterprise, Industry Vertical, Enterprise Size, and Region. The Role of Financial Literacy In this world of emerging financial trends and the increase in the importance of financial literacy, businesses are able to grow easily and focus on operational expandability due to the easy availability of fund flow. As the awareness of investments and borrowings are available at consumers’ fingertips, the right spread of knowledge helps them to understand the right opportunity to borrow as well as invest so that they can benefit from the spreading availability. Unsecured Debt Instruments at Terkar Capital We at Terkar Capital offer a broad range of advanced, tailored, affordable funding solutions hassle-free. We facilitate all possible unsecured debt instruments available in the Indian Economy for our clients. However, the executives at our firm have received training to streamline the process for easy accessibility for our valuable clients. So, everything concerning understanding the products, and designing the solutions as per requirement till disbursement of the funds. Not only does it end here but we also take care of your repayments and future funding requirements. Check out the Global Unsecured Business Loans Market scenario 

Dropline Overdraft (DLOD) meaning Dropline Overdraft (DLOD) is a facility granted to the customer by the financial institution where businesses can overdraw from their current account up to a limit that is agreed upon by the banker. An Overdraft Facility is one of the most efficient forms of borrowing as one needs to pay interest only for the amount of money withdrawn. A dropline overdraft is almost similar to an Overdraft in all cases except the availability of the limit. This withdrawal limit reduces each month from the sanctioned limit. However, the calculation of the Interest rate is done daily and it is charged at the month’s end. You will be charged only for the amount used, So, you can always park your funds in a virtual account whenever funds are not in use. Important features of Drop line Overdraft: It can come in as both forms of loan i.e. Secured loan and Unsecured loan. In case one opts for an unsecured dropline overdraft, there is no requirement for any collateral. DLOD is a hybrid of both term loans and overdraft facilities. The sanctioned limit reduces the withdrawal limit monthly. The facility is only available for the current account. Thus, the bank credits only the amount to the current account. Every month, the bank charges interest on the amount withdrawn, however, calculating it daily. DLOD is the best facility for manufacturers, retailers, traders, and service providers. There are no kind of yearly renewal charges levied. Read more about Overdraft Facility – Meaning, Advantage, and Significance, Here. Who is eligible for the Dropline OD facility? Any entrepreneur, proprietor, self-employed professional, a private company, or partnership firm will get access to the DLOD facility. Understand the difference between overdraft facility and cash credit here. What are the documents needed for the DLOD facility? 1. General requirements KYC Documents of borrower and co-applicants Aadhar Card PAN Card 2. Statutory documents A. In the case of Proprietary Firm Shop Act GST certificate Udyog Aadhar certificate B. For a Partnership Firm Shop Act GST certificate Udyog Adhar certificate Partnership deed C. In the case of a Private limited company: Certification of incorporation AOA MOA 3. Income documents Last 3 years Financials (audited) Last 3 years ITR Existing loans status 1-year Banking DLOD Facility at Terkar Capital For those seeking a dependable financial institution to access the Dropline Overdraft facility, Terkar Capital is the preferred choice. We are dedicated to facilitating Financial Instruments and will make sure you have a hassle-free experience in availing of the capital. Our operational efficiency, coupled with a commitment to transparency, confidentiality, and professionalism, positions us as adept debt fund arrangers. Terkar Capital stands prepared to serve your financial needs promptly and effectively, ensuring satisfaction in every aspect of the process. Learn in detail about an Overdraft facility.

Cash Credit and Overdraft Difference When it comes to running a business, working capital is crucial to keep things going. That’s where finance comes in handy. The Cash Credit and Overdraft are two types of short-term loan facilities. It can give you a quick boost, while long-term options like LC, BG, factoring, and business loans can help you plan for the future. Lenders offer businesses two types of short-term loan facilities: cash credit and overdraft. An overdraft facility is also offered to individuals based on their relationship with the bank. Let’s learn the difference between cash credit and overdraft facility. Bank Overdraft Facility OD is a facility wherein a bank allows customers to borrow a set amount of money. There is interest on the loan, and there is typically a fee per overdraft. Thus, the Overdraft facility is giving current accounts to customers. So, the customers can withdraw the funds even after the account has zero balance. OD is like any other loan. The account holder pays interest on it and will typically be charged a one-time insufficient funds fee. There are different types of overdrafts: 1. Standard Overdraft Standard Overdraft is withdrawing more funds than the account limit. So, the bank that permits overdrafts typically charges you a small fee for the service. 2. Secured Overdraft It is like a traditional Loan. As financial institutions lend credit a wider amount of collateral is used to secure the funds. 3. Clear Overdraft In this no separate security is present but the overdraft is given based on the individual’s net worth. CC Facility Cash credit is commonly offered to businesses rather than to individual consumers. Customers can use the cash credit for routine banking transactions up to the credit limit. Thus, in the following situations, CC can be used to meet the working capital gap: Purchase of Raw Materials Maintain inventory Finance, sales, and other activities Warehousing, storage, etc. Rent, electricity, bills, etc. Key Difference between Cash Credit and Overdraft Facility   Bank Overdraft Cash Credit Meaning The facility offered by the bank to withdraw more than the account limit permits Short-term funding extended by FI to meet daily working capital requirement Purpose To do operations of the business To get raw materials, maintain storage, pay bills, etc. Tenure Long Term Short Term Interest rate It is calculated on only the amount used It is calculated on the entire amount withdrawn Bank Account The current account of the owner’s bank  Need to open a separate account Burrowing Limit It is decided on the basis of collateral and financials    The cash credit limit is decided on the basis of inventory and stock volume. The general rate of Int. Higher Lower Amount withdrawing limit Decided on account and relation with FI Up to 60% value of receipts and inventory Why Terkar Capital? Understanding the difference between cash credit and overdraft facilities is crucial for businesses, particularly MSMEs, which frequently struggle with working capital management. To address this, Terkar Capital offers a range of overdraft options, such as standard, secured, and clear overdrafts. These facilities are tailored to meet diverse business requirements and enable effective working capital management, just like cash credit facilities. Each loan option caters to specific business needs, allowing MSMEs to efficiently manage their working capital. By comprehending the differences between cash credit and overdraft facilities, businesses can make informed choices that align with their unique requirements.

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.

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? I. 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. II. The seller then goes to the bank and discounts the bill. Here the credit score or the seller-banker relationship has been checked. III. Bank transfers the amount deducting the discount in favor of the seller. IV. The seller then uses this amount till the end of the credit period. V. 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 does the payments or the specified person as per the stated agreement. Understand the process of bill discounting facility 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 is BG (bank guarantee), 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 lending institution offers Bank Guarantee (BG) as a financial instrument. However, the lender will ensure that the liabilities of a debtor will meet. 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 of 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 involved, Bank Guarantee clears the hurdles. The BG obtain for a specified period. It is as per the need 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 an importer. The exporter shipping goods requests the importer to get the Bank Guarantee from his banker. The banker on demand from the customer applies for 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 an issuing party and “ABC Pvt Ltd” is a 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 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 BG from the importer. The importer requests his bank for the BG and submits the necessary documents. After preparing 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 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? An OD facility is a financial arrangement between a bank and a customer, that allows the customer to withdraw more money than is currently available in their account. Almost every bank or financial institution in India provides an overdraft facility to its customers. The bank decides the loan amount and interest rate criteria. Let’s learn what an overdraft facility entails and how Terkar Capital assists in the OD application process. As the name suggests, the bank gives OD facilities to borrowers.  It is to withdraw money more than the balance available in their bank account to overcome working capital requirements. OD is a short-term loan that must be repaid as determined by the bank. It can be available even if the account balance is zero. Such a facility is available in both secured and unsecured ways. The borrower can be individuals, self-employed professionals, etc. 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 Terkar Capital is a financial institution that is known for providing OD facilities to its customers with ease. With Terkar Capital, borrowers can easily apply for overdraft facilities based on their needs and eligibility. # Particulars OD Facility Min Amount (Rs. INR) 25 Lacs Max Amount (Rs. INR) (No capping) Rs. 100 cr + ROI Repo Rate Linked Tenure Revolving An overdraft is a helpful financial tool in times of need. However, it is important to understand its meaning and potential risks. We believe this blog provides an in-depth explanation of overdraft’s meaning, its usage, and how it works. Overall, this article provides a helpful overview of the concept of overdraft meaning in the context of Indian banking. 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.