Procure your Goods by Taking a Proper Financing Option

The projected growth of India’s economy according to IMF is supposed to be around 7.80% in this fiscal year, a number which is immensely influenced by the rising number of startups and MSMEs in the country.

Currently, the number of registered and unregistered MSMEs functioning in the country goes well beyond 40 million, boasting of employing around 40% of India’s workforce.

●       More than 106 million are directly or indirectly employed by the MSME sector in India.

Channel financing

This is a structured financing solution that is offered to business enterprises which require working capital. In channel financing, the partner businesses are directly financed by the lender so that the working capital needs are effectively covered.

Under this option of financing to procure goods and maintain business workflow, there are 2 major options. Note that these lines of credit are quite distinct from standard business loans.

●       Vendor finance: In this financing option, the vendors or suppliers provide a loan to their customers, which is the concerned business under these circumstances. The loan is then used by this business to purchase the supplies from the vendor. Also known as trade credit, this form of financing is basically a loan from the vendor which is deferred.

●       Dealer finance: Also known as an indirect loan, in this type of channel financing, the dealer offers a loan to their customers. The loan is then sold to a third-party financial institution that collects the loan along with its interest.

Invoice financing

As the name suggests, this type of financing allows a business to procure a line of credit against the due invoices from different vendors or clients.

There are many businesses which have to maintain the supply of their product with their bill only to be settled later at a fixed date.

Invoice finance helps such businesses since it provides them with working capital to optimally finance their supply chain even if the invoices from already completed deliveries are not cleared yet.

Working capital loan

Working capital is the financial requirement of an enterprise which is necessary for it to maintain its production chain.

Typically short-term loans, many financial institutions offer these schemes to businesses and startups to help maintain their immediate financial needs.

These lines of credit cannot be used to upgrade equipment or expand a venture and must be used to fulfil working capital needs.

A major advantage of these loans is that they do not have any collateral and lenders usually approve them very promptly. Business owners should learn how to use working capital loans to strengthen their business so that they can maximise their benefits.

●       Accounting for roughly 16% of lending by financial institutions, the growth rate of MSMEs are approximately 10%.

Business credit cards

Business credit cards are offered by select few financial institutions to help businesses cope with sudden financial needs.

While such cards may not be a great option to regularly maintain the working capital requirements, it can be a very effective option if a business has fluctuating needs every month.

While such needs can be effectively dealt with invoice finance options too, business credit cards also allow an entrepreneur to spend on other necessities.

These cards can also help in building the CIBIL score of a business. In turn, this can help the business to avail higher loans to aid them during expansion or upgrades.

Business loans

Business owners can always opt to avail a business loan instead of options like an invoice or channel financing. These loan schemes are offered by many financial institutions. However, it is unwise to avail such a loan unless there are some additional financial needs as well.

Since they offer higher amounts, these loans have longer repayment tenors too. The loan amounts can go up to Rs.30 lakh, making these loans a viable option for upgrade financing and other needs along with that of mass procurement of goods and raw materials.

Typically, these loans are approved promptly by financial institutions within 24 hours of application. Reputed NBFC Bajaj Finserv even provides pre-approved offers which make the application procedure easy and fast for business owners.

●       Currently, fixed assets of MSMEs in India are estimated to be more than Rs.1.4 lakh crore.

The different lines of credit discussed above are effective in providing the working capital necessary to purchase goods. Be it a business loan, channel financing, or any other option; it is important for entrepreneurs to also check the benefits offered on these schemes.

This includes the numerous tax exemptions which must be checked by every entrepreneur. Consequently, be it big or a small business owner, tax-saving tips should be checked by all to reduce their expenses.