SME and Trade Finance

Small and Medium Enterprises (SMEs) play a vital role in the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, creates 1.3 million jobs every year and produces more than 8000 quality products for the Indian and International markets. The SME segment has come into the limelight, with increased focus from government institutions, corporate bodies and banks, being viewed as agents of growth. Apart from the policy focus and the government’s thrust towards promoting the SME segment, globalization and India’s robust economic growth has opened several latent business opportunities for this segment in diverse Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and several Service sectors.

We at Kaizen assist SME businesses from scratch and provide assistance both in terms of arranging funds and providing business solution and thus partner in the growth of the SME . We cater to the financial requirements of Small and Medium Enterprises (SME) through various funding options which include:

• Cash Credit : Cash Credit facility continues to be the most preferred and popular mode to meet day-to-day working capital needs. Cash Credit is provided against primary security of stock, debtors, and other current assets, etc., duly supported by collateral security of movable fixed assets, immovable property, personal or corporate guarantee.

• Term Loan: A Term Loan is granted for a fixed term of not less than one year, and is intended normally for financing fixed assets acquired or to be acquired, and carries an interest at a specified rate scheduled for repayment in installments.

• Factoring  : A receivable's management and financing service designed to improve the seller's cash flow and to cover risk. This is best suited for financing trade and unlike other financing services, it normally requires no collaterals. Its two parts are:

  • Invoice Bill Discounting: Discounting of invoices in respect of the client's regular sales to them.
  • Purchase Bill Discounting: Discounting of suppliers' bills in respect of the client's regular purchases from them.

• Letter of Credit (LC): A binding document through which a seller re-assures itself that the payment for the goods supplied will be honored by the buyer or its bank establishing such letter of credit. Basically, a Letter of Credit gives the seller reassurance that they will receive the payment for the goods supplied as per the terms of LC. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame as per the terms specified.

• Bank Guarantee: As part of Working Capital required, SME sector equally needs Bank Guarantee Facility in the form of Bid Bonds, Security Deposit, Mobilization Advance, Advance Payment, and Performance Guarantees. These guarantees either generate cash needed for the operating cycle and/or save outgo of cash as substituted by the Bank Guarantees issued by the Banker.

• Buyers Credit: Under this arrangement Importer (Buyer) avails credit from overseas lenders i.e. Banks and Financial Institutions for payment of his imports on due date. The overseas Banks usually lend the Importer's (Buyer's) based on the Letter of Credit issued by the Importer's (Buyer's) Bank. In fact the Importers Bank brokers between the Importer and the overseas lender for arranging buyers credit by issuing its Letter of Comfort for a fee. Buyers credit helps local importers access cheaper foreign funds close to LIBOR rates as against local sources of funding which is comparatively costly.