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Finance Sector of India Financial Sector of India is intrinsically strong, operationally sundry and exhibits competence and flexibility

besides being sensitive to Indias economic aims of developing a market oriented, industrious and viable economy. An established financial sector assists greater standards of endowments and endorses expansion in the economy with its intensity and exposure. he fiscal sector in India entails banks, financial organi!ation, markets and services. he sector is classified as organi!ed and conventional sector that is also recogni!ed as unofficial finance market. Fiscal transactions in an organi!ed industry are executed by a number of financial organi!ations which are commercial in nature and offer monetary services to the society. Further classification includes banking and non"banking enterprises, often recogni!ed as activities that are client specific. he chief controller of the finance in India is the #eserve $ank of India %#$I& and is regarded as the supreme organi!ation in the fiscal structure. 'ther significant fiscal organi!ations are business banks, domestic rural banks, cooperative banks and development banks. (on"banking fiscal organi!ations entail credit and charter firms and other organi!ations like )nit rust of India, *rovident Funds, +ife Insurance ,orporation, -utual funds, .I,, etc. Financial Sector of India Eligibility for government autonomy -entioned below are certain criterions that are re/uired to be fulfilled for ac/uiring government autonomy in India0

Availability of sufficient fund of up to 12 Accessibility of total non"performing wealth of below 32 -inimum net possessed funds of more than )S4 5.6 million and net revenues of minimum past three years. Financial institutions that satisfy the abovementioned re/uirements will be authori!ed functional independence in almost all managerial areas.

Financial Sector of India RBI guidelines for NBFC's he #eserve $ank of India has relaxed its guidelines for the operation of non"bank finance companies %($F,s& in India considering the various investments from the investors. It has also permitted leasing of machinery and rent"buying credit firms with endowment level rankings to avail public savings increase the maximum limit on the amount of public investments on these ($F,s that may allow and expand the closing date for observance on its norms by two years. he fiscal competitiveness of several ($F,s persists to be of importance to the administration and reserve bank of India controllers. here is a significant merging activity in this industry as ($F,s are regulated by stringent yardsticks that are obligatory to fulfill. In addition, India has entered into new agreements with 7 ' in the area of fiscal services in .eneva on

4ecember 8339. Financial Sector of India Chief Characteristics Some of the major characteristics of Financial Sector of India are

he financial sector of India allows -ost Favored (ation %-F(& reputation to all international banks and firms offering financial facilities. he sector has relaxed previous -F( tax exemption on banking activities. Allows 85 new financial bank division authori!ations every year to international banks, that is higher as compared to the existing 1 every year. #aises the 8:2 limit of reinsurance by insurance firms in India. *ermits 682 foreign endowment in fiscal advisory, issuing, hiring, business enterprise capital, business banking and non"banking credit firms.

ypes of Finance here are two main sources of finance0 ;/uity Financing " money invested into your business in exchange for a share in its ownership. 4ebt Financing " usually in the form of a loan where the principal amount borrowed and interest accumulated on the loan needs to be paid. here are a number of sources of e/uity finance available to business. his includes0 *ersonal Savings0 money that you personally invest into the business. Friends and #elatives0 people that you personally know invest into the business to lend assistance. Angel Investors0 wealthy individuals who lend their personal finances to a business in return for a share in its ownership. <enture ,apital0 applications to professionally managed third parties such as a superannuation fund who lend finance based on a good business plan. here are also a range of opportunities to secure debt financing such as0 +easing0 hiring out e/uipment for a regular fee for the duration of the lease term, with no outlay to actually purchase e/uipment. erm +oans0 paid back to a financial institution over an agreed period. ,redit ,ards0 easy to ac/uire financial institution loans that carry high interest rates. $ank 'verdrafts0 where you withdraw more than your account contains, with interest calculated on your outstanding balance. ,ommercial $ills0 short term loans where the amount must be paid in full upon reaching expiry. +oan *rograms0 short term loans set up to assist small business with initial start up expenses. rade ,redit0 deferred payment of goods and services purchased form a supplier. ypes of Financing

4ebt Financing = ,ommercial $ank +oans4ebt financing does not give the lender ownership control, but the principal must be repaid with interest. +ength of the loan, interest rates, security and other terms depend upon for what the loan is being used. Short"term0 +oans for short periods %>:"81: days& usually made to cover temporary or seasonal needs for inventory or personnel. hese are common for established businesses, but may be hard for a new business to obtain. he key to getting a short"term loan is to always have an identified primary and secondary source of repayment. A short"term loan will probably be either a time loan or a line of credit, both with maturities of one year or less. hese types of loans often possess the following characteristics0 ime loans are made for a specified period when there is an identified source of repayment that will be available within a specified period of time. *rime candidates for these loans are seasonal businesses, with the source of repayment being the conversion of inventory to receivables and then into cash. +ines of credit are annually renewable pre"approved vehicles allowing the borrower access to credit whenever needed within predetermined terms. he business owner can borrow and repay as the business cash flow dictates. A line of credit is usually documented by a loan agreement, a contractual document that details the specific terms and covenants which must be observed. Self"li/uidating purchases of inventory or the bridging of expenses pending the collection of accounts receivable are examples of uses for a line of credit. -edium to long term0 hese loans may be repaid over anywhere form 8 to 6 to even 5: years depending on how the funds are used. he source of repayment is the cashflow of the business. ypical uses are for e/uipment, fixed assets, etc. -ost loans to start a small business will be of this type. 'ften referred to as term loans or installment loans, these usually cost more than short"term credit. he most common uses for long"term loans are to provide working capital, to purchase e/uipment, or to buy or improve land and?or buildings. 7orking capital loans represent funding for all purposes that are not fixed assets or a line of credit. ;xamples could be general and administrative funds for expanding the business, a percentage of the purchase of permanent assets, the costs of building out leased space or for purchasing furniture, fixtures, or computer and automotive e/uipment. $anks usually re/uire 5:">: percent as a down payment and will finance the balance for a period of three to seven years. +oans for e/uipment generally will be extended for a term consistent with the depreciable value of the assets. #eal estate financing0 #eal estate is typically financed over a fairly long term, 8: to >: years. ;xpect a down payment of about 5:2. (on"$ank 'ptions0 Asset"$ased +endingSummari!ed, the term asset"based lending came into vogue in the 839:s to describe an industry that included speciali!ed lending departments of banks, non"bank commercial finance firms, and factoring organi!ations. oday, asset"based lenders provide a variety of financial services to small, medium, and large businesses through0 secured lending against the assets of a corporation, loans for machinery and e/uipment, real estate, leasing, import"export financing, ac/uisitions, and factoring accounts receivable. his area of financing should be part of the working knowledge of every small business owner. ,ombined with the commercial lending services of a firms bank, and a working knowledge of state and federal loan programs, asset"based lending %or the broader category of non"bank commercial finance& rounds out the available sources of debt financing available to the growing small enterprise. odays small business owner must be knowledgeable about all forms of financing, what they can do, why one method may be better than another, and where sufficient funds can be found. .iven the highly

regulated credit markets faced by banking institutions it only makes sense to maximi!e knowledge of lending options for your business. he small business owner familiar with bank lending will find an asset"based lender capable of structuring similar loans and lending agreements with a willingness to take slightly more risk. <irtually any type of loan a bank can make will have a corresponding asset"based lending option. Significant 4ifferences he difference between a bank and an asset"based lender can be significant. Asset"based lenders are not regulated and this makes conventional financial ratios secondary in the credit analysis. 7hile banks are virtually confined these days to strict reliance on balance sheet figures, an asset"based lender can look behind the figures at the business strategy, management, market potential, products, etc. -ake no mistake, these lenders are as interested in getting repaid as banks and government programs, but they will have a tendency to see if they believe the funds can be put to profitable use. Assuming these parameters are met, asset"based lenders may allow a higher borrowing capacity. hey will certainly establish the limit on a loan based on the clients collateral and not its net worth. In the best asset"based lending arrangements, as business grows, the borrower becomes self"financing. For example, if a firm has a line of credit with an asset"based lender, as receivables grow, the ability of the firm to borrow grows. Asset"based lenders will generally not re/uire compensating balances@ interest is paid only on the funds borrowed. his type of secured lending revolving loan pool is not impossible with banks, but has become much more problematic for small businesses to obtain in the 833:s. An asset"based lender will re/uire significantly more of the borrowers record keeping systems. #eporting re/uirements can be extensive and include invoices, remittance reports, sales assignments, accounts receivable aging reports, etc., perhaps on a daily basis. he nominal rates charged by asset"based lenders will therefore be higher, sometimes significantly higher, than conventional borrowing from banks and government loan programs. $ut the small business owner of the 833:s should avoid undue emphasis on rate, and also take into account the terms of loan agreements, the availability and flexibility of the funding source, and the profit potential of what the borrowed money can accomplish. ;/uity financing In its most basic form, e/uity financing results in the repayment of principal and?or return only if the venture produces sufficient funds?revenues for that purpose@ hence the term risk capital. 4ue to the risk%s&, the possible capital sources could be anyone, anywhere, anytime depending on the amount, purpose, and stage of business at issue. ;/uity financing will always re/uire consideration of ownership, profit, benefit sharing, operational control, valuation, and exit strategies as important issues to be carefully evaluated. Although e/uity financing can cover a wide array of capital source types, there are, in general, several overall categories. he following summaries may help you in the e/uity search.

<enture ,apital?S$I,s?Investment $anking Approximately 6:: institutional firms represent sources of e/uity financing involving investment approaches which are typically characteri!ed by specific, often demanding investment criteria for their financing interest, result in substantial due diligence investigations, and can re/uire significant ownership sharing. he bulk of this capital source is focused to more developed enterprises with few start"up or early stage opportunities. 'f the entire e/uity market for small businesses, venture funds represent less than 6 percent or approximately A>6 billion. *ratts .uide to <enture ,apital Sources is a comprehensive guide to these organi!ations. Friends B #elatives For most start"up situations or early stage enterprises, capital is typically generated by persuading available friends or relatives to bankroll the venture. Although re/uiring less in the way of written business materials and perhaps more accessible, there are substantial risks beyond economic considerations which should be seriously evaluated, not the least of which may be disrupted relationships should the business not perform as expected. Since the funding primarily results from the personal relationships involved, complete business plans, a professional support team, and significant due diligence investigations are not characteristic of this funding mechanism. 'wnership sharing may or may not be re/uired. -any family members will enter into an agreement through the use of a simple promissory note. Angels Angels represent an informal market of individual investors and business persons?entrepreneurs who may or may not fre/uent the small business investment area. Access can be through any business contact, but is usually the result of professional sourcing through a financing consultant, attorney, accountant, and?or other type of business adviser. A solid business plan with professional support is usually re/uired to achieve an investor comfort !one which also usually includes due diligence review. #isk evaluation and pricing are usually the maCor issue, as opposed to ownership sharing. he Dampton #oads *rivate Investor (etwork provides some confidential access to private investors for small businesses in the Dampton #oads region. Seed " Seed money is used in the beginning planning stage of a small business. Stage 8 = usually refers to the stage after the product has proven viable Stage 5 = A follow on funding round based upon sales progress Stage > = later stages to fund growth $ridge = any short term financing to provide interim funds between funding cycles or until the next imminent event *rivate ;/uity *lacements

his form of financing is subCect to several regulatory and legal re/uirements. Accordingly, direct support and continuing assistance from a professional team of financial, legal, and accounting advisors is re/uired to assemble the necessary written materials and establish a successful financial marketing plan. A complete business plan is necessary and due diligence should be expected. 'wnership sharing and valuation can be significant issues. Strategic *artners his evolving area of e/uity financing in its most basic form, represents some other business enterprise%s&, related or unrelated to your venture investing to achieve some advantage, economic or non"economic, by providing goods, services, support, and?or attractive credit arrangements to you in return for goods, services, and?or a potential e/uity position. For example, a maCor product or material supplier may grant very favorable payment terms to allow extended time for receivables recovery and improving and?or stabili!ing cash flow in return for exclusive dealing, the prospect of larger orders by tracking a firms success, handsome interest charges, and?or even potential e/uity involvement. his type of financing is extremely effective and, due to its focus, /uite efficient. It can occur in a wide variety of forms and can even involve direct competitors in teaming arrangements. Sourcing is usually with professional financial and business advisors re/uiring a good professional support team, and solid business planning. 6 Forms of Financing for Small $usiness 8. $ank loan he most common form of financing is a commercial bank loan. Dowever, it can be difficult for an S-; to /ualify for this form of financing. $anks prefer to lend to companies with experienced owners that can show a history of profit and stability. ;ven companies that are eligible for bank financing sometimes find the terms stifling. 5. Asset based lending his is similar to a bank line of credit but with a few key differences. he main one is that the amount of money you are able to borrow is primary based on a percentage of the total assets under consideration. ypically, assets considered for this type of loan would be accounts receivables with some combination of machinery, inventory and e/uipment. In most cases the lender can provide up to 162 of the accounts receivables and up to E:2 of the inventory. Asset based lending is often used when a bank line of credit is too inflexible, slow or unattainable. 4ocuments #e/uired0 !ocuments Re"uired For India factoring Field Survey 8. $rief on"company profile covering business model and details on directors and key management personnel.

#$ %atest Shareholding &attern of the com&any$ >. 4etails of Associates group companies, list of companies where either the company or -anagerial person has any stake holding as follows0 (ame of the Associate or group company (ame of the *erson who has holding (umber of Shares <alue of Shares %in#s.& 2 Dolding

Factorable !ebtors ' Creditors 8. ,omplete ledgers account of all proposed factorable debtors?creditors for the preceding 85 months along with their monthly balances B narrations. 5. At least three sample copies of purchase order?agreement and respective invoices along with *'4, Shipment order, payment advice from each of the proposed factorable debtor?creditors %up to three only then five audit trails to be conducted for each debtor & >. Ageing of all 4ebtors and ,reditors outstanding as on last day of last ended month F. Invoice wise aging statement for the proposed debtors for outstanding as on last day of last ended month 6. Foreign Inward #emittance ,ertificates on a random basis %to be collected for exporters&. Financials 8. Annual #eport or Financial Statement %Audited& for the last three years. 5. Incase latest audited financials are not available, signed provisional balance sheet to be collected >. ax Audit #eport %form >c4& for immediate assessment year. F. Income ax #eturn acknowledgement %I #& of last > years. 6. railing 85 months monthwise figures of Inventory, creditors, debtors and Sales. Ban(ing 8. ,opy of bank sanction letter of all the bankers associated with the company having any limit vi!., working ,apital, erm +oaF +,, $. etc. 5. +ast E months bank statement of all operating accounts %7orking ,apital account and erm +oan including ;xport?Import&. 7here available bank statements to also be provided in hard copy and?or excel worksheets. %6 $anks&

>. Additionally E months statements from that bank where maximum transaction takes place. %If not covered in point 5 above& F. All ?+ statements from all the banks. 6. If the company is already enCoying any factoring limit from any banker, Sanction letter and last E months statement of the same E. Stock B $ook debt statement submitted to all the bankers for last > months. Com&liance 8$ %ast three months ;lectricity ?water bills of primary factories I operating locations 5. Any certification ?awards obtained by the clients like IS' >. *ollution ,ontrol board certificate F. ,opies of last > monthsG ,hallans for deposit of statutory dues e.g. " *F, ;SI, 4S, Advance ax, ;xcise, <AI Service ax etc " %as applicable& 6. +edgers of statutory payments may be shown to surveyors %not to be collected, only to be shown, if possible& E. Statutory returns vi!., ;xcise, for last > months or last 5 /uarters %As applicable& 9. Statutory returns <A ?,S or Service ax for last Financial Hear %85 months& and proceeding months in current year " %as applicable&

)*C &rocess +,lease ma(e se&arate lile for it8. A( 5. S (o. %If applicable& >. ;xcise (o. %If applicable& F. <A (o %If applicable& 6. ;nvironment +icenses %If applicable& E. SSI #egistration %If applicable& 9. 4I( %4irector Identification (umber& 1. *A( of the ,ompany B All the directors.

>. Factoring

his form of financing fills a gap in the credit market because it creates an immediate influx of cash based solely on invoices. It tends to have more flexibility and is easier to /ualify for than asset based lending or bank financing. A factor purchases your accounts receivables and advances 9:2 to 3:2 of the total. 'ften factoring is used by service"based companies that dont have collateral, start"ups, companies with seasonal work and companies that are growing /uickly. Its also useful for companies that have hit hard times and need cash flow to turn around their business. F. -erchant ,ash Advances his form of financing is a solution for companies that are having difficulty securing traditional loans or need funding for a special proCect. As opposed to factors that are purchasing current invoices, cash advance providers are purchasing future income. hese providers offer businesses a lump sum of capital. )nlike a loan, you pay a set percentage of your daily credit cards sales until the cash advance company recovers their advance and premium. Although this is a more costly form of finance, it is a useful solution for companies like restaurants with strong credit card sales that need capital to grow their business or purchase new e/uipment. 6. *urchase 'rder Finance his form of finance generates working capital to pay for finished goods or components based on your customers purchase order. A *urchase 'rder Finance company pays your supplier to produce and ship goods so you can fulfill a customers order. 'nce you fulfill the order, you invoice your customer and send a copy to the *.'. finance company. hey collect payment for that invoice and return the payment to you, less a fee. his is a solution for companies that need increased cash flow to take on new business or expand their operations. hese are Cust a few of the types of financing available to S-;s. here are many options to explore that can free up cash and help grow your business. 7hichever form of finance you pursue, youGll find that the revenue you generate from expanding your operations can far outweigh the cost of alternative finance solutions. ,orporate Finance0

8& he financial activities related to running a corporation. 5& A division or department that oversees the financial activities of a company. ,orporate finance is primarily concerned with maximi!ing shareholder value through long"term and short"term financial planning and the implementation of various strategies. ;verything from capital investment decisions to investment banking falls under the domain of corporate finance. Among the financial activities that a corporate finance department is involved with are capital investment decisions. Should a proposed investment be madeI Dow should the company pay for it@ with e/uity or with debt, or combination of bothI Should shareholders be offered dividends on their investment in the companyI hese are Cust some of the /uestions a corporate financial officer attempts to answer on a consistent basis. Short"term issues include the management of current assets and current liabilities, inventory control, investments and other short"term financial issues. +ong"term issues include new capital purchases and investments. 7orking ,apital 7orking capital is defined as the difference between current assets and current liabilities. ,urrent assets are the most li/uid of your assets, meaning they are cash or can be /uickly converted to cash. ,urrent liabilities are any obligations due within one year. 7orking capital measures what is leftover once you subtract your current liabilities from your current assets, and can be a positive or negative amount. he working capital is available to pay your companyGs current debts, and represents the cushion or margin of protection you can give your short"term creditors.

*ositive 7orking capital is essential for your company to meet its continuous operational needs. he availability of working capital influences your companyGs ability to meet its trade and short"term debt obligations, as well as to remain financially viable. If your current assets do not exceed your current liabilities, you run the risk of being unable to pay short term creditors in a timely fashion.

$usinesses that are seasonal or cyclical often re/uire more working capital to stay afloat during the off season. Although your company may make more than enough to pay all its obligations yearly, you must ensure you have enough working capital at any one time to meet your short term obligations. For example, a company may do significantly more business over the holidays, resulting in large payoffs at the end of the year. Dowever, the company must have enough working capital to buy inventory and cover payroll during the off season as well, when revenues are lower.

7orking ,apital Finance he term working capital has several meanings in business and economic development finance. In accounting and financial statement analysis, working capital is defined as the firms short"term or current assets and current

liabilities. (et working capital represents the excess of current assets over current liabilities and is an indicator of the firms ability to meet its shortterm financial obligations %$realey B -yers, 5::5&. From a financing perspective, working capital refers to the firms investment in two types of assets. In one instance, working capital means a businesss investment in short"term assets needed to operate over a normal business cycle. his meaning corresponds to the re/uired investment in cash, accounts receivable, inventory, and other items listed as current assets on the firms balance sheet. In this context, working capital financing concerns how a firm finances its current assets. A second broader meaning of working capital is the companys overall nonfixed asset investments. $usinesses often need to finance activities that do not involve assets measured on the balance sheet. For example, a firm may need funds to redesign its products or formulate a new marketing strategy, activities that re/uire funds to hire personnel rather than ac/uiring accounting assets. 7hen the returns for these Jsoft costsK investments are not immediate but rather are reaped over time through increased sales or profits, then the company needs to finance them. hus, working capital can represent a broader view of a firms capital needs that includes both current assets and other nonfixed asset investments related to its operations. In this chapter, we use this last meaning of working capital and focus on the tools and issues involved in financing these business investments. ypes of ,redit facilities by $anks0 'verdraft0 he word overdraft means the act of overdrawing from the $ank account. In other words, the account holder withdraws more money from the ,urrent Account than has been deposited in it. he loan holder can freely draw money from this account up to the limit and can deposit money in the account. he 'verdraft loan has an expiry date after which renewal or enhancement is necessary for enCoying such facility. Any deposit in the overdraft account is treated as repayment of loan. Interest is charged as balance outstanding on /uarterly basis. 'verdraft facilities are generally granted to businesspersons. ,ash ,redit0 hese are also the facilities where, like overdrafts, a limit is set in the account not exceeding one year. Dowever difference is that a separate J,ash ,redit account is opened by the bank where limit is applied instead of clients account. $anks lend money against the security of tangible assets or guarantees in the method. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is

permitted to withdraw a certain sum called JlimitK or Jcredit facilityK in excess of the amount deposited in the account. 'nce a security for repayment has been given, the business that receives the loan can continuously draw from the bank up to that certain specified amount. he purpose of cash credit is to meet working capital need of businesspersons. $ill 4iscounting0 )nder this type of lending, $ank takes the bill drawn by borrower on his %borrowers& customer and pays him immediately deducting some amount as discount and commission. he $ank then presents the $ill to the borrowers customer on the due date of the $ill and collects the total amount. If the bill is delayed, the borrower or his customer pays the $ank a pre"determined interest depending upon the terms of transaction. erm +oan0 his type $anks lend money in this mode when the repayment is sought to be made in fixed, pre"determined installments. hese are the loans sanctioned for repayment in period more than one year. his type of loan is normally given to the borrowers for ac/uiring long"term assets. Short erm loan0 erm loan extended for short period usually up to 'ne year is term as S +. his type of loan may or may not have specific repayment schedule. Dowever, S + with repayment schedule is preferable. +etter of ,redit0 his is a pre"import finance, which is made in the form of commitment on behalf of the client to pay an agreed sum of money to the beneficiary of the +?, upon fulfillment of terms and conditions of the credit. hus at this stage bank does not directly assume any liability, as such the same is termed as contingent liability. *ayment against 4ocuments0 *ayment against 4ocuments or simply %*A4& is a post"import finance to settle the properly drawn import bills received by the bank in case ade/uate fund is not available in clients account. his is a demand loan for interim period and li/uidates by retiring import bills by the client. he bank shall immediately serve a notice upon the client mentioning arrival of documents with a re/uest to arrange retirement of the same immediately. +oan against rust #eceipt %+ #&0 his is also a post"import finance facility awarded to retire import bill directly or under *A4 as the case may be. In this case, bank may or may not reali!e margin on the total landed cost, depending upon banker"customer relationship. Dere the possession of the goods remains with the borrower and the borrower executes L+etter of rust #eceipt in acknowledgement of debt and its repayment along with interest within agreed period of time. ;xport Finance0 +ike import finance 4$+ advances in export trade at both pre and post shipment stages. In this type of advance, standing of both opener and beneficiary of export +?, as well as standing of the +?, issuing bank are of important consideration. he pre"shipment facilities are usually re/uired to finance the costs to execute export orders, such as0 procuring B processing of raw materials, packaging and transportation, payment of various fees and charges including insurance premium. 7hile post"import facilities are directed to finance exporters various re/uirements, which are re/uired to be settled immediately on the backdrop that usually, settlement of export proceeds takes some time to complete. Syndicated +oan0 hese are the loans usually involving huge amount of credit and such to reduce a particular banks stake. A number of banks and financial institutions participate in such credit, known as

loan syndication. he bank primarily approached by arranging the credit is known as the lead or managing banks. +ease Finance0 hese types of finance are made to ac/uire the assets selected by the borrower %lessee& for hiring of the same at a certain agreed terms and conditions with the bank %lessor&. In this case, bank retains ownership of the assets and borrower possesses and uses the same on payment of rental as per contract. In this case, no down payment is re/uired and usually purchase option is not permitted. $ank .uarantee0 $ank .uarantee is one sort of non funded facility. $ank .uarantee is an irrevocable obligation of a bank to pay a pre"agreed amount of money to a third party on behalf of a customer of a bank. A contract of guarantee is thus secondary contract, the principal contract being between the beneficiary and creditor and the principal debtor themselves to which guarantor is not a part. If the promise or the liability in the principal contract is not fulfilled or discharged, only then the liability of guarantor or surety arises. Factoring Factoring is a financial transaction whereby a business sells its accounts receivable %i.e., invoices& to a third party %called a factor& at a discount. In MadvanceM factoring, the factor provides financing to the seller of the accounts in the form of a cash Madvance,M often 9:"162 of the purchase price of the accounts, with the balance of the purchase price being paid, net of the factorGs discount fee %commission& and other charges, upon collection from the account client. In MmaturityM factoring, the factor makes no advance on the purchased accounts@ rather, the purchase price is paid on or about the average maturity date of the accounts being purchased in the batch.

Dow it works 0 Hou deliver goods or services to your client and raise an invoice. 'n an on"going basis, all such invoices of a pre"agreed buyer, along with supporting trade documents are assigned to India Factoring. India Factoring advances you a pre"payment as early as the next business day on receipt of such documents %subCect to being in order&. 'n settlement of the respective invoice by your buyer to India Factoring, the balance amount %if any& is credited to your account.

$enefits 0 Hou benefit from predictable cash flows linked directly to performed sales. #eadily convert credit receivables to cash, as India Factoring will provide pre"payment immediately. 'n submission of complete documentation, funding normally by next business day. Nuick turnaround times ensure incremental cash flow planning and management. India Factoring can additionally provide credit assessment on customers, new or existing. Free monthly Account #eceivable reporting, sales ledger administration and debtor follow"up. (o additional debt created on your balance sheet. Hour Mcredit lineM grows as your business expands. ;xtremely scalable form of leverage. *ossibility of outsourcing your receivables collections process, allowing you to focus on your core business ypes of Factoring Factoring with recourse is the standard type of factoring facility whereby the company accepts the credit risk in the event of the failure of his customer. here is a notice of assignment on each invoice stating that it has been assigned to A$, Factors +td and payment should only be made to them

Factoring without recourse is where the factoring company assumes the credit risk in the event of the failure of the customer. he factor will assign each customer a credit limit and will accept the credit risk up to that limit. 'ften they will refuse to fund any invoices in excess of the credit limit which can mean problems for their clients cash flow.

In both cases the factor carries out the administration of the sales ledger and is responsible for the collection of overdue debts and this should result in savings in overheads as well as the prime purpose of increasing li/uidity. Factoring companies in India

,anbank Factors +imited0 http0??www.canbankfactors.com

S$I .lobal0 http0??www.sbiglobal.in

he Dongkong and Shanghai $anking ,orporation +td0 http0??www.hsbc.co.in?8?5?corporate?trade"and" factoring"services

IF,I Factors +imited0 http0??www.ifcifactors.com

India Factoring and Finance Solutions *vt +td0 http0??www.indiafactoring.in

.lobal rade Finance +imited0 http0??www.gtfindia.com

4$S0 http0??www.dbs.com

;xport ,redit .uarantee ,orporation of India +td0 https0??www.ecgc.in?*ortal?productnservices?maturity?mfactoring.asp

,itibank (A, India0 http0??www.citibank.co.in

Small Industries 4evelopment $ank of India %SI4$I&0 http0??www.sidbi.in?fac.asp

Standard ,hartered $ank0 www.standardchartered.co.in Comparison between Bill Discounting and Factoring. Bill Discounting 1. Individual Transaction 2. Each bill has to be individually accepted by the drawee which takes time. Factoring 1. 'hole turnover basis. This also gives the client the liberty to draw desired inance only. 2. ( one time noti ication is taken rom the customer at the commencement o the acility. 3. Stamp duty is charged on certain usance bills together 3. )o stamp duty is charged on the invoices. )o with bank charges. It proves very expensive. charges other than the usual inance and service charge. 4. More paperwork is involved. 5. Grace period or payment is usually ! days. are to be submitted. 7. Charges are normally up ront. 7. )o up ront charges. *inance charges are levied on only the amount o money withdrawn. 4. )o such paperwork is involved. 5. Grace periods are ar more generous.

6. "riginal documents like MT#$ ##$ and %ill o &ading 6. "nly copies o such documents are necessary.

Comparison between Cash Credit and Factoring. Cash Credit Factoring

1. Margin usually retained is 2, /. 1. Margin retained on receivables are usually +,-., /. 2. 3repayments against invoices are made as and 2. The drawing power on the basis o stock statements when they are actored. It is like cash sales. is computed once a month. I invoices are raised between submissions o stock statements$ no money can be drawn against them. 3. The client has to submit various statements like 0IS$ 3. )o statements are to be given. "n the contrary *actors urnish various reports to both the client and I$ II 1 III stock statements etc. to the bank. the customer. 4. )o collection services per ormed or the clients. 4. "ne o the unctions o the actor is debt

collection 5. "nce a book debt exceeds its usance period$ it is removed rom the eligible list 6. 4igher limits are bi urcated into CC and 5& components. 7. Interest linked to 3&#. 6. )o such bi urcation. The actoring account operates like a CC account 7. *inance charge linked to our cost o unds$ which is competitive to that o banks. 5. The *actor allows grace up to !, days.

Flow ,hart of Factoring0 8. Initial -eetings0 his is the initial stage wherein a customer approaches india factoring either through consultancy or via reference from existing customers or we have direct approach from the customers through the ads published in leading business newspapers and ,A maga!ines. he relationship managers conduct a meeting and get the first impression about the company. his stage is the most important in the entire flow chart as the portfolio of the company is studied and decision is made whether it is a prospective customer or not. he target customers of the company are the companies ranging from a turnover of 5:cr to 6::cr. he customer here is informed about the process charges i.e. 51:3:#S. his amount is nonrefundable. 5. Initial 'ffer Issuance0 India Factoring gets a commitment from the customer wherein the customer accepts the processing charges. he company formulates the pricing structure i.e. the interest rate that will be charged against fund issued to the customer. he interest rate is usually between 85 to 86 percent depending upon the turnover of the customers company. .he I/ issuance letter format is as follo0s 4ate0558:F85:8> o,

Oind Attention0 -r. P %-anaging 4irector& 4ear Sir, At the outset, we wish to thank you for the opportunity of discussing mutually beneficial business opportunities, Further to our discussions and the information provided to us, we are glad to state our indicative terms and conditions. Facility *roposed Facility enor *roposed Funding 2 4iscount #ate Service ,harge %per invoice& and 9:2 %Approx.& Assessment Facility 4ocumentation Sales Factoring I(# F: -illion -ax of 3: 4ays from lnvoice 4ate or as per historical receipts captured in survey or as per contract with you, whichever is lower. 9:2 %Approx.& 8F.56:?o p,a. or $ank ,, rate %whichever is higher& :.56:?o per invoice value :.96:?: of the sanctioned facility limits payable at the time of setup Q -aintenance Fee A non"refundable fee of I(# 56,:::?" plus applicable taxes to be paid at the time of acceptance of this letter. Factoring Agreement $oard #esolution . Signature<erification . *ersonal .uarantee ? ,orporate .uaranteeR o (et 7orth %,A ,ertified& o +atest I #eturns . 4emand *romissory (ote . ,ertificate of $orrowing . *ower 'f Attorney lndia Factoring reserves the right to seek additionaldocumentation.

R All shareholders having shareholding of more than 862 and?or other persons who may have provided guarantee for other facilities. Accepted 4ebtor lntroductory +etter %4l+& $oard resolution Signature <erification his is chargeable at the end of the month on the unutili!ed amount subCect to the average utili!ation being under 6:2 in the month and at :,82 of the unutili!ed facility amount payable. I(# 5::: plus applicable taxes per 4ebtor

,ounter *arty 4ocumentation ,ommittee fee

4ebtor Assessment fee

'verdue Interest 'ther ,onditions ransaction 4ocuments

Additional 62 p.a. chargeable on the overdue invoices Favorable commercialterms and conditions stipulated by the other $anks?+enders will apply mutatis mutandis to our account also, ( # %(otification 'f ransfer #eceivables& 'riginal copy of lnvoice %with assignment text&R ransaction backed *4,Gs of ,, banker *roof of Shipment %one of the below o 'riginal +orry #eceipt o Accepted 4elivery ,hallan R *urchase 'rder R lnvoice to have a credit period. Financing only to the extent of the credit period. RR Additionally client needs to also confirm receipt of good All the invoices raised on approved debtors should be routed through lndia Factoring and Finance Solutions *vt. +td. %lF+& 4isbursement will be made in your ,, account only 'n account payment will not be accepted and the debtor has to make invoice wise payment.

'ther ,onditions

*lease note that the above is merely an indication of our terms and conditions based on our understanding of your business re/uirements etc, lt does not and should not be deemed to constitute in any manner, form or matter, our commitment or offer to either provide the services and?or maintain the terms as stated, *lease also note that all the above terms and conditions etc., if agreeable, are subCect to our internal?onsite credit appraisal processes and we reserve the sole and unconditional right to withdraw our interest or delete?modify any condition that we feel necessary. Should there be, in your opinion, a change in the circumstances or understanding on the basis of which this indicative term sheet has been prepared, we re/uest you to bring it to our notice at the earliest. 7e are confident you will find the above terms and conditions to your interest and look forward to your in"principle approval to help us progress with evaluation of the facility at the earliest. 7e would also re/uest you to provide all information?documentation that we may re/uire to facilitate our credit appraisal process. Hou are re/uested to note that lndia Factoring only deals with professional you clients. $y signing this letter undertake that you have appropriate experience to deal with financial products and you have decided to avair of the facirities being offered by us after understanding the same.

Hou and your 4ebtor, as the case may be, are neither Affiliated company direcfly or indirecfly nor their 4irectors?shareholders and?or *artneis are even distanfly related to each other and that both you and your 4ebtorG as the case may be, are not under the common control. you further confirm that you and your 4ebtor, as the case may be, is not having any two way trade between yourselves. 7e re/uest you to sign a copy of the letter and pay the aforesaid assessment fee confirming acceptance of the indicative terms and conditions mentioned above. hanking Hou, For lndia Factoring and Finance solutions &rivate %imited #- (ame0 *arul#oy 4esignation0 -anager

Facility and erms Agreed0 For Name of the 1om&any (ame of the Authori!ed Signatory 4esignation0

>. Survey0 At this stage the assessment of the ledger of the customers debtors takes place based on this a conclusion is drawn whether to proceed with the customer or not. he customer is re/uired to provide with necessary bank account documents such as balance sheet of at least past > years, bank statements of past E months and any other statutory re/uirements. F. Field survey report%FS#& Q ,redit assessment (ote%,A(&0 FS# and ,A( report is prepared by the official ,As of the company where they give a detailed report of the entire analysis of the customers company. his mostly takes 5 days for the customers login. his is one of the key stage wherein the company knows even the minutest detail about its customers profile. 'n the basis of this report scores are given to the customers company and interest rates are decided accordingly, higher the score lower will be the interest rate giving a benefit to the customer. 6. ,redit Nueries0 the ,As give their opinion on the above report. hey have intense discussion after which they come up with certain /ueries and /uestions such as, why is the ,, limit not utili!ed to the fullest, why is there is a overdraft facility taken on ,,. All these /uestions are listed down and are sent to the client for clarification. After the client clarifies the /ueries everything is resolved and the case goes to the next stage i.e. to the committee. E. -A(,'-0 his is a committee of 6 people namely the ,;', the ,F', the ,,', and the various risk heads. he case is presented In front of them, their views, challenges and observations are put across and

the final decision is made so as to approve the funding to the customers. Any changes regarding the interest rate or the funding amount are altered. 9. Sanction letter and documentation0 At this stage the documents have to be executed i.e. signed by the client and the debtors compulsorily in front of a relationship manager from India Factoring. 1. (otice of Assignment0 $riefly > things are mentioned in a ('A" Firstly the borrower informs the debtor that he has taken factoring facility as assignment

ON THE CLIENTS LETTER HEAD NOTICE OF ASSIGNMENT Date: To, <Buyer Name> Dear Sir, We have availed Trade Finance Facility by way of Standard Factoring Facility from India Factoring and Finance Solutions pvt Ltd !India Factoring , !th Floor, "aibhav #hamber$, Bandra%&urla #om'le(, Bandra % )a$t, *umbai +,,,-., a Factoring #om'any in /ndia0 /n order to $ecure the amount$ due and 'ayable under the $aid Factoring Facility , we had entered into Factoring 1greement with /ndia Factoring and e(ecuted other deed$, $ecurity document$, underta2ing$ etc in favor of /ndia Factoring0 3nder the $aid Factoring 1greement , we have a$$igned all our 4eceivable$ to /ndia Factoring on the term$, condition$ and covenant$ a$ $et out therein0 The 1$$ignment of all our receivable$ to /ndia Factoring will be governed and regulated under Factoring 4egulation 1ct5 6,..0 /n light of the $aid a$$ignment, 2indly note the following: .0 1ll receivable$ due from you to u$ will be a$$igned to /ndia Factoring0 60 The 'ayment$ of all our 're$ent and future invoice$ rai$ed on you are to be made to /ndia Factoring0 70 1ll 'ayment$ after <#ommencement Dat8 are to be made by way of any authori9ed 'ayment mode or che:ue drawn in favour of India Factoring and Finance Solutions p t " ta A#c $client na%e& and the che:ue$ be forwarded to /ndia Factoring at their addre$$ given below: % #lient 4elation$hi' De'artment /ndia Factoring and Finance Solution$ ;vt0 <td0 "aibhav #hamber$, !e Floor Bandra%&urla #om'le( Bandra =) , *umbai +,,,-. Tel' ())*++,) ---- Fa./ ())*++,) ---0 1lternatively, you can al$o ma2e all 'ayment$ to /ndia Factoring through 4T>S mode, the detail$ for which may be noted a$ below:

Name of the Ban2 : 1(i$ Ban2 <td 1ddre$$ : Bandra &urla #om'le(, Bandra )a$t, *umbai %+,,,-. Ty'e of 1ccount : ## 1ccount 1?c No : 1,,(2(((-+L23+4 /FS# #ode' 5TI4(((()2( +0 1ny communication from u$ for change in the above 'ayment term$ $hall be mandatory accom'anied by No @bAection certificate ? written con$ent from /ndia Factoring0 -0 We $hall continue to be liable to you for $u''lie$? :uality and :uantity of good$ etc agreed to be made by u$ to you a$ 'er the agreed term$0

1ny :uerie$, claim$ and?or di$'ute$ ari$ing after recei't of merchandi$e from u$ $hould be addre$$ed to u$ with a co'y thereof to /ndia Factoring0 1'art from the change in 'ayment 'ractice, the relation$ between u$ remain unaltered and you $hould continue to 'lace order$ with u$0 We feel $ure that thi$ change in 'rocedure will be of mutual benefit0 /f you have any :ue$tion$, 'lea$e contact u$, or /ndia Factoring, in thi$ re$'ect0 Accordingl67 8e re9uest 6ou to :indl6 %a:e all "uture pa6%ents a"ter t;e date %entioned a<ove directl6 to India Factoring Than2ing you in antici'ation of your continued $u''ort and acce'tance ofthe above0 Bour$ faithfully, For Name: De$ignation: =e accept t;e a<ove ter%s and conditions For <Buyer> Na%e' Designation' Contact No' !along 8it; t;e ru<<er sta%p o" t;e >u6er? ##: India Factoring and Finance Solutions @rivate Li%ited

!ft Floor, "aibhav #hamber$, Bandra%&urla #om'le(, Bandra % )a$t, *umbai +,,,-.

Secondly, it mentions that all the overdraft payments must be made in *unCab (ational $ank%*($& a?c no only +astly, if there are any changes in the mode of payment the debtor must inform India Factoring. 3. First *ayment? 4isbursement" $efore the funding is done the company waits for the debtor to make one unfactored payment to India Factoring as an assurance from the debtor in order to gain faith and then the disbursement is done respectively.