MSME Loans

What is Working Capital Finance?

Every business enterprise requires funds for –

 Setting up the business viz., purchase/construction of land & factory/office buildings,

buying of plant & machinery, office equipment, furniture & fixtures etc.
Funds required for this purpose are called Fixed Capital. Financing the need for such funds
is called Project Finance.

 Running the business viz, purchase of raw materials / stocks, stores and
consumables, packing materials, freight, manufacturing expenses, salaries & wages,
selling & marketing expenses etc.
Funds required for this purpose are called Working Capital. Financing the need for such
funds is called Working Capital Finance.

Type of Credit Facilities

 Cash Credit: Offered for working capital requirement of clients for smooth operation
of day-to-day transactions. The drawings of the sanction are restricted upto the
sanctioned limits or available Drawing Power (whichever is lower) and should be only
for the purposes for which the limit has been sanctioned. Similar to an active running
account, there are no restrictions on the number of debit and /or credit transactions in
the account. It is expected that all sales/ purchase/other transactions other borrower
should be routed through this account.
 Bank Guarantees: Non-fund based facilities required for business purposes. For various
business obligations customers need to provide bank guarantees. The limits comprise
of 10% to 25% margin and remaining in the form of collateral.
 Overdraft: Offered for working capital requirement of clients for smooth operation of
day-to-day transactions. The limits normally range upto 20% of audited turnover for
manufacturers and upto 15% of turnover for traders / distributors.
 Term Loan: Term loan is an advance allowed for a fixed period ( 3 to 5 years ) either in
lump sum or in installments and which is repayable according to a schedule of
repayment as against on demand and at a time. They are generally granted to meet
the need for capital expenditure i.e. acquiring of fixed assets for the purpose of setting
up of new units or expansion.
 Working Capital Demand Loan: Working Capital Demand Loan: Short term loan
repayable on demand is offered to match working capital requirement for a short term
of 3-6 months which needs to be repaid in installments as per terms of sanction.
 Bill Discounting: Bill / Invoice Discounting is offered against discounting of hundi (Bills
of Exchange) / invoice raised to corporate customers. These represent advances
against bills of exchange drawn by the customers on their clients. The limit ranges in
the form of 20 to 25% of turnover.
 Export Finance: Export packing credit is offered to exporters against export order for
manufacturing / purchasing of goods to be exported and discounting of export
receivables once goods are exported. Export packing credit is essentially a pre
shipment finance to help the exporter with the working capital requirements.
 Pre-shipment credit in foreign currency (PCFC): refers to any loan or advance provided
by the Bank in foreign currency, to exporters for domestic or imported inputs for
export goods at LIBOR related rates of interest.
 EPCL: refers to any loan or advance provided by the Bank in INR currency to exporters
for domestic or imported inputs for export goods. All packing credits must be paid by
Proceeds of bills negotiated, purchased or discounted
 Post-shipment export credit (PSL) : Loan or advances granted by Bank to an exporter of
goods/services from India after shipment of goods as per the tenor sight or usance.
Finance is mainly taken in the form of Export bills purchased/discounted/negotiated in
Rupee terms and in FCY the discounted proceeds can be appropriated with
outstanding EPCL/PCFC on FIFO basis as the case may be.
 LC Discounting: Offered for discounting against Inland / Domestic Letter of Credit
received by our client. Usance Bills under Inland Letters of Credit are discounted. DRUL
product is offered for customers who have a limit set-up through a proper credit
appraisal. The counter party limit is approved for Drawer / Drawee. Bills can be
discounted only in places where our Bank has a branch network
 Letter of Credit: Letter of Credit are Non-fund based facilities required for business
purposes. Letters of credit helps customers to facilitate purchase of goods in
international and domestic trading operations. Bank issues a letter of assurance to the
seller at the request of a buyer for payment of cost of goods / services sold on certain
terms and conditions.
 CGTMSE Scheme: Collateral free credit facility to MSEs. All new and existing Micro and
small Enterprises engaged in manufacturing or service activity excluding educational
institutions, Agriculture, Self Help Groups(SHGs), Training Institutions. Retail traders
are also eligible to be covered under the scheme.
 There is a hybrid security product in which Bank can obtain collateral security for a
part of the credit facility, whereas remaining part of the credit facility upto Rs. 2crs.
can be covered under CGTMSE guarantee. The guarantee coverage for manufacturing
and service activities are upto Rs. 2crs. and for retail traders its upto Rs.1cr. The annual
service fees/ annual guarantee fees are levied which are to be borne by the borrower.
Guarantee will commence from guarantee start date and shall run through the agreed
tenure of the term loan / composite loans. Guarantee can be invoked only after lock-in
period of 18 months either from the date of last disbursement of credit to the
borrower or from the date of guarantee cover, whichever is later.
Criteria of MSME Loans:

1. Turnover : Should be More than 60 Lacs

2. Target Segment / Nature of Business: Should fit into the target segments
3. Business Entity: Entity should be Proprietor, Partnership Firm, LLP, Private Ltd
Company or Public Ltd Company
4. Business Vintage: Entity should have a vintage of at least 3 years
5. Collateral Availability: Customer should have a Residential, Commercial, Industrial
property
6. Profit Making: Entity should be profitable

Target Customers for MSME

 Trader & commission agents, merchants of Grains / Vegetables / Fruits / Spices,
computer sale & service, Departmental stores, supermarkets, Multi branded
outlets, wholesalers, stockist, distributor, etc.
 Corrugated Boxes, Chemicals, small Electronic Equipments, textiles, fabrications,
small auto parts, packaging industry, Agro Processing Units, etc.
 Printing & Publications, Engineering Job Work, Logistic provider, etc.

Benefits of MSME Loans

 Funding for wide spectrum income Generating Activities
 Variety of Funding Options Leading to Lower Cost
 Professional and Participative approach
 Scope to scale up funding to suit growing business needs
 Inculcates Financial Discipline
 Helps you build a credit profile
 Third party Due Diligence of Business Model
 Proper Legal Documentation
 Assured and Steady Source