(1.

) CASH/CREDIT OVERDRAFT
-Overdraft financing is provided when businesses make payments from their business current account exceeding the available cash balance -overdraft facility enables businesses to obtain short-term funding - although in theory the amount loaned is repayable on demand by the bank -bank specifies a predetermined borrowing/credit limit -borrower can draw/borrow upto a stipulated credit/overdraft limit -borrower can make any number of drawings to the extent of his requirements but within the line of credit -repayment is made whenever desired during the period -interest is determined on the running balance/amount actually utilized by the borrower and not on the sactioned limit , at a rate that is above the Bank Base Rate.The bank may also charge an overdraft facility fee; ADVANTAGES -it is flexible -Bank has flexibility to review and adjust the level of the overdraft facility, perhaps on a short-term basis -borrower has the freedom to draw as and when required and interest is charged only on amount that is actually outstanding DISADVANTAGES -inconvenient to bank and hampers credit planning -interest rate on an overdraft can be quite high, especially for small firms where the risk to the bank that they might not get their money back is greater EXAMPLES OF FEW OF THE BANKS PROVIDING OVERDRAFT FACILITY
Banks / Financial Insti Processing tutions Interest rates charges 9%-15.75% Rs. 200 per lac linked to Min.1,000/- Allahabad credit rating Max.20,000/Bank 0.50%-1% of the limit Axis Bank 10.50%-17% amount Andhra Bank 9%-15% N.A. 0.20%-0.60% linked to quantum of the Bank of limit Baroda 8%-15% Rs.100 per lac. Max.75,000/linked to quantum of the limit Bank of India 13%-14.75% Bank of 0.50% of the Maharashtra 9.50%-15.50% limit amount

(2.) BANK LOANS

-Loans arranged with a bank that are less than one year are regarded as short term finance -Under this arrangement, the entire amount of borrowing is credited to the current account of the borrower or released in cash -borrower has to pay interest on total amount -the loans are repayable in on demand or in periodic installments -they can also be renewed from time to time. ADVANTAGES OF BANK LOANS: -Business and bank know precisely what the repayments of the loan will be and how much interest is payable and when. This makes cash flow planning more predictable -The loan is committed the business does not have to worry about the loan being withdrawn whilst it complies with the terms of the loan FOR EXAMPLE SHORT TERM LOAN GIVEN BY BANK OF BARODA IS AS FOLLOWS PURPOSE: To meet temporary shortfall / mismatch in liquidity, for meeting genuine business requirements only. ENTERPRISES GROUP: Micro, Small & Medium Enterprises as per Regulatory definition and all other entities with annual sales turnover of Rs. 1/- crore to Rs. 150/- crores. ELIGIBILITY CRITERIA Satisfactory credit rating for the last three years Latest Balance Sheet etc. should be available. Satisfactory financial performance in terms of sales / turnover and profits. Negative variance, if any, should not be more than 10%. Satisfactory dealings with the Bank for at least three years. LOAN AMOUNT: Upto 25% of the existing Fund based Working capital limits (depending on the Credit Rating), subject to a minimum of Rs. 10 Lakhs and maximum of Rs. 250 Lakhs. PERIOD: Not exceeding 180 days minimum 90 days SECURITY First charge / Equitable mortgage of fixed assets of the company / firm or extension of existing first charge / equitable mortgage of fixed assets, ensuring that there is a minimum asset cover of 1.25. Extension of Charge on current assets for the additional facility ensuring that adequate drawing power is available. Extension of all existing guarantees of Directors / Third party guarantees to cover the additional facility.

RATE OF INTEREST: As applicable to existing working capital facilities. PROCESSING CHARGES: 25% concession in applicable charges.

(3.) BILLS PURCHASED / DISCOUNTED

-bank credit is being made available through discounting of usance bills by banks -the bill financing is intented to link credit with sales and purchases of goods and thus eliminating the scope of misuse or diversion of credit to other purposes -the amount made available under this arrangement is covered by cash credit and overdraft limit -before discounting the bill the bank satisfies itself about the credit worthiness of the drawer and the genuineness of the bill -the discounting banker asks the drawer of the bill to have his bill accepted by the drawee bank befor discountin it. -the latter grants acceptance against the cash credit limit , earlier fixed by it on the basis of borrowing valueof the stock -therefore the buyer who buys goods on credit cannot use the same goodsas a source of obtaining additional bank credit.g EXAMPLE OF BILL PURCHASING / DISCOUNTING BY SOUTH INDIAN BANK Post Sale limits are extended by way of discounting/ purchasing of bills/cheques, advances against book debts etc. Bill Purchase- These may be in the nature of on demand Clean or Documentary bills being the bills payable on demand drawn on outstation centres for which immediate credit is afforded to your business account less our discount and handling charges. Usance Bill Purchased- Usance Clean or Documentary bills are bills payable on due date after expiry of the usance period drawn on drawees/payees against which immediate credit is given to your business account less interest for the usance period, handling charges, postage etc. Cheques Discounted- Outstanding cheques/drafts drawn on our bank or other banks are purchased and immediate credit is afforded to your business account less our discount/commission.

(4.) LETTER OF CREDIT

-A Letter of Credit (LC) is a document issued by your bank that essentially acts as an irrevocable guarantee of payment to a beneficiary. This means that if you do not perform your obligations, your bank pays. The letter of credit can also be the source of repayment of the transaction meaning that the exporter will get paid with the redemption of the letter of credit. -letter of credit is indirect form of working capital financing and banks assume only the risk , the credit provided by the supplier himself. -The purchaser of goods on credit obtains a letter of credit from bank

-the bank undertakes the responsibility to make payment to the supplier in case the buyer fails to meet his obligations. -Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. For example, importers and exporters might use letters of credit to protect themselves. In addition, communication can be difficult across thousands of miles and different time zones. TYPES OF LETTERS OF CREDIT Revocable letter of credit Just like the name says the LC can be revoked by the Issuing Bank without the agreement of the beneficiary. Irrevocable letter of credit Can not be cancelled or amended without all the parties agreement. Standby letter of credit Guarantee of payment. If the beneficiary does not get paid from its customer it can then demand payment from the Bank by forwarding the copy of the invoice that was not paid and supporting documentation. Revolving letter of credit It is established when there are regular shipments of the same commodity between supplier and customer. Eliminates the need to issue an LC for each individual transaction

(5.) HYPOTHECATION
Hypothecation is the action of pledging specific assets as collateral to obtain a loan. These securities may be in the form of real estate, different types of securities, or any other property that the lender deems acceptable as collateral. Along with securing loans for the purchase of property, such as with a mortagage, the hypothecation may also involve using the debit balance in a margin account to secure what is known as a margin loan. With hypothecation, the borrower is allowed to retain possession of the asset or property that is pledged as collateral. In most cases, the borrower also remains the owner of record for the asset. The lender receives a lien that can be used to gain access to the asset in the event that the borrower defaults on the loan for any reason. This helps to reduce the degree of risk that the lender assumes in exchange for extending the loan. For the borrower, hypothecation can often help make the process of financing a purchase much easier. Since the loan is secured by the pledging of some asset that the lender deems acceptable, the possibility of obtaining a more competitive rate of interest on the loan is increased. The lower interest rate will save the borrower money over the life of the loan, without having an impact at the outcome. Assuming that the borrower makes all loan payments on time, he or she eventually retires the loan and the lien on the pledged property is discontinued.

Trade Finance / Working Capital Facilities by AXIS BANK

Letters of Credit (LC - Sight / Usance) Whether you are an exporter or an importer, Axis Bank offers a gamut of services to meet your entire Letter of Credit requirement including Opening, Advising and Confirming LCs. We also structure complex Letters of credit, Back to Back LCs to suit specific transaction requirements. Bill Collection Services Axis Bank offers flexible and efficient handling of commercial and financial documents for Imports and Exports. We have in place an extensive network and correspondent banking arrangements to facilitate the same. Trust Receipt Loans This financing facility can bridge the gap between payment for imported goods and receipt of funds through subsequent sales, thus giving our customers greater flexibility and liquidity. This ensures that our customers do not miss any business opportunities due to inadequate cash flow. Invoice Financing For customers who wish to import their products on Open Account terms, we provide Invoice Financing facilities. Such facilities are tailored to customers' needs to carry out their import activities without using a Documentary Credit. Export LC Negotiation We can provide immediate payment to our customers on presentation of shipping documents under a LC transaction. Our experienced staff checks documents and correct errors to ensure compliance before submission to the LC issuing bank. Purchase of Export Documents We can purchase / discount export documents in both kinds of export arrangements - Documents against Payment (D/P) and Documents against Acceptance (D/A). This facility allows our customers to receive a cash advance against an expected payment under Documentary Collections thus improving their cash flow. Receivables Discounting We can provide discounting for export bills with or without recourse basis, for sales to Buyers acceptable to us. Thus, customers may leverage Axis Bank's extensive understanding of Indian corporates for financing of their sales under Documentary Collection terms to Buyers in India. Through such a facility, the credit risk of the Buyer is covered by the Bank and the financing may be made with or without recourse to our customer. Short term loans/ Overdraft facility Axis Bank offers working capital finance by way of overdraft or short term working capital loans, suitably structured to your needs and your risk profile. These products are designed to ease the liquidity position of the client.

FINANCIAL MANAGEMENT

REPORT ON 'TYPES OF SHORT TERM FINANCING BY BANK FOR WORKING CAPITAL' (WITH EXLPLANATION AND EXAMPLES)

PREPARED BY APOORVAMAHESHWARI ROLL NO 153 C K PRAHALAD PGDM ITM KHARGHAR

SUBMITTED TO PROF. BHARAT SHAH