A Brief Description of Lease Rental Discounting

Lease Rental Discounting

 

The leased properties can source you funds! Yes, you read it correctly. The leased properties can, however, give you funds that can be used for either expansion, purchase of assets or paying off other loans. Such loans can be obtained through a debt product called Lease Rental Discounting (popularly known as LRD). LRD is a type of term loan which is offered against the rental receipts of the property. The property must be leased for 5-10 years and the lessee or tenant should be a well-known brand.

Benefits of Lease Rental Discounting

• LRD serves as a multi-purpose loan and can use the funds for business expansion, financing for the purchase of an asset or new property, or paying off loans.

• The owner of the property does not have to pay the bank, but in return, the tenant of the property directly pays the bank the loan in the form of rental receipts through an escrow account every month.

• This facility gives a long-term solution to cash flow management as the lease/ repayment is for longer tenures.

• The Rate of Interest in LRD depends upon the value of property, repayment tenure, the credibility of the lessee, etc.

Lease Rental Discounting Eligibility

There are no fixed criteria for eligibility, as it differs from institution to institution. Below is the most preferable one,

• Age criteria: The applicant must be 21 years or above but not more than 60 years in case of a salaried person and 65 years in case of a self-employed person.

• Criteria for Borrower: The borrower must possess a property that is leased to a known brand or corporation. The loan is provided to individuals who are salaried, professionals, or even self-employed.

• Lease Agreement Period: The lease agreement period is a very critical and important factor for taking a lease rental discounting loan from a bank or NBFC. The bank may or may not provide a loan if the lease period is less than 5 years. Rented properties with leases from 5 to 10 years are provided with this loan.

• CIBIL score: LRD provides a loan to a borrower who has a creditworthy CIBIL score. CIBIL score and track record is decisive factor for sanctioning or rejecting major loan applications.

Prerequisites to Lease Rental Discounting

The following pre-requisites should be taken into consideration before applying for LRD.

Corporate Tenants: The tenant for LRD should be financially fit to meet the obligations of the bank, which allows banks to ascertain whether or not future payments are likely to come. The banks only discount lease rentals belonging to renowned corporations or brands with a good credit rating.

Longer repayment period: Secondly, the tenure of LRD is usually between five to seven years or can even go up to 10 years. Banks generally do not make short-term lease rental discounting loans. It is for this reason that the amount of loans and the repayment period is usually large, and it is not possible to get paid off within small tenures. Thus, LRD holds larger tenures of repayment.

Repayment Criteria

For the repayment of the loan, an escrow account is created where there is the participation of two or more parties like the borrower, the tenant, and the banker.

The tenant will be asked to transfer their rent to this account and the EMIs will be withdrawn from the same.

How is Loan against Property (LAP) different from Lease Rental Discounting (LRD)?

A Loan against Property is the borrowing of a loan against the whole property as collateral and getting funds against the loan. LAP utilizes the higher amount of loan against the value of your property and can use the same for business purposes.

Whereas, in the Lease Rental Discounting, you get only a certain amount of loan against the lease amount the lessee will pay. The loan is provided against future expected rentals which should have a fixed and regular rental receipt.

Why choose Terkar Capital?

Terkar Capital is one such institution that provides a wide range of products to clients after studying all the aspects of financials, CIBIL score, business plan, industry, sales, etc. We arrange conventional and non-conventional debt and equity funding solutions at a reasonable cost of borrowing. So whenever it is raising funds for corporates, Terkar Capital is ready to serve you at best!

Understanding Corporate Finance in India

Corporate Finance

All the corporates in India are in constant need of funds for operating their businesses. Corporate finance is the area of finance that deals with raising the finances of companies and assists in capital creation and development of the corporation. Corporate finance manages financial decisions that affect operations like Capital Budgeting, Capital Raising, Investment Decisions, etc.

The finance of the company can be raised in two ways, i.e., Debt and Equity finance. Equity funding is generated by selling shares of the company and reinvesting the same amount. Whereas, Funding through debt happens when a company borrows money and agrees to pay it back to the lender at a later date. The debt capital is further divided into 2 major parts i.e., Unsecured funding and Secured funding.

If you are looking for a corporate funding solution, Terkar Capital can be the appropriate platform for raising finances from both debt and equity funding. We provide secured as well as unsecured funding options to our customers and suggest the best suit according to the financials. Below is the list of a few of our solutions:

Secured Funding

Secured funding is a type of loan where the borrower has to keep collateral of assets or security against the loan. The borrower here does not have personal liability for the loan. The period of the loan offered in secured is high with a low rate of interest. In case of default, the lender has the right to put the asset or security pledged on auction and recover the amount from it.

1. Loan against Property(LAP): 

As the name suggests, a loan against property is the most secure type of loan for lending institutions and the most easily available one for borrowers in normal circumstances. It is generally a long-term loan that needs collateral security against loans.

2. Working capital Finance: 

Working capital is the difference between the company’s current assets and its current liability. One can avail a loan against working capital which helps in short-term operations like paying dues or expenses, utility bills, etc. Hence, Working Capital Loan allows one to run their operations smoothly and efficiently. Working capital is available in both secured and unsecured ways.

3. Machinery loan: 

All manufacturing companies require machinery to manufacture the products which may have huge costs. In such a case, a machinery loan is something that acts as a savior for your business. The machinery loan is available in both secured and unsecured ways which are taken for purchasing new machinery.

4. Builder Finance: 

It is a loan to the builders or developers for constructing or developing residential or commercial property. Being long-term finance, builder finance comes under secured funding. The collateral of such a loan will be the land against the property being acquired or developed. Generally, lenders prefer those builders who have been in this construction field for many years and have a good CIBIL rating.

5. Lease Rental Discounting(LRD): 

LRD is a loan that is offered against rental receipts of the borrower which are derived from lease rent contracts from the clients. The loan is provided to the lesser based on the discounted value of the rentals and the value of the property.

6. Debt Syndications: 

It occurs when a borrower requires an amount that is too large for a single lender to provide, hence there is a group of lenders. The lenders in debt syndication share the risk only exposed to their portion of the loan.

7. Foreign Currency Funding: 

It is when the borrower wants to fund across the borders, i.e., a foreign country, and hence the borrower as well as the lender deals in foreign currency only.

8. Sugar Pledge Loan: 

The time gap between production and sales of sugar is high and hence, they can face a crunch in working capital and sugar industries can get loans against them.

9. Project Finance: 

Project finance means a loan obtained for fulfilling the finances of the new project, the new project can be used for expansion, reconstruction, etc. Here, the project itself is kept as collateral and the loan amount has to be paid after the completion of the project and once the borrower starts generating revenue.

Unsecured Funding

As the name suggests, unsecured loans are loans where the collateral security is absent, and the loan is provided based on the CIBIL score. This type of loan is taken by businessmen to overcome their short-term inconsistencies in the business such as payment to suppliers, shortage of working capital, unsettled invoices, and many more. The Rate of Interest is comparatively high because of the absence of collateral.

1. CGTMSE: 

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is an unsecured loan for micro and small enterprises to help small businesses grow in a competitive market and assist entrepreneurs to build their businesses and avail of collateral-free loans easily and conveniently.

2. Trade Finance: 

Trade finance makes it possible and easier for importers and exporters to transact business through trade. Trade finance signifies financing for trade, and it concerns both domestic and international trade transactions. This is one of the suitable financial instruments we can use while dealing with an international customer for minimizing financial risk.

3. Bill Discounting: 

Discounting of the bill can be defined as the advance selling of a bill or invoice to an intermediary before it is due to be paid about certain criteria. A major aspect of bill discounting is that it will help in resolving the crunch of working capital.

4.  Factoring: 

It is the financial instrument or debtor finance in which the seller sells its accounts receivable to a third party called ‘factor’ at a discount. There are three parties involved in such a transaction: a seller, a buyer, and a factoring company. In simple words, it is selling unpaid invoices for the requirement of instant cash.

5. LC Discounting: 

Letter of Credit/Line of Credit is the guarantee by the bank to purchase the bills of the exporter and in return make him the payment. LC Discounting is the facility provided by banks, NBFCs, or Financial Institutions.

Importance of Corporate Finance:

1. Raising Capital: 

Corporate finance means raising the finances of the existing company by debt or equity which is required for running the business efficiently. The need for funds can be for making expansions and diversification in business, payment dues, etc.

2. Research and Development: 

Finance is a crucial aspect of the business, it is also required for undertaking research and development which enhances the functioning of a business organization.

3. Smooth Running of Business: 

For a business to run effectively, there should be proper legal and other compliance like paying dues and taxes on time, which is again developed by corporate finance.

Steps/Process in Corporate Finance

1. Interaction with the client: 

The foremost step in this process is interaction with clients and knowing about their company’s financial condition, i.e., the requirement for finance, product/instrument for raising finances, etc. The process starts with a discussion of clients' requirements and their expectations and ends after disbursing the loans. We arrange the best possible product and provide an easy process throughout. Also, our team of experts guides the applicant in every stage.

2. SWOT analysis of the company: 

It is important to know the strengths and weaknesses of the company, which will help us to draw the analysis of raising finances. Not only strengths and weaknesses but overall analysis of the company is essential to exactly understand which funding to go for.

3. Inspecting the market options: 

After understanding the overall aspects of the company, we check the conventional and non-conventional factors and suggest the best suitable option for them. We discuss the overall process in-depth with clients and make them understand it thoroughly. Here, we check the eligibility of the client, and the overall documentation procedure is undertaken.

4. Approval of Finances: 

We arrange the meetings with lending institutions and take their approval, which ultimately starts the loan procedure i.e, sanctioning of the loan. These arrangements are settled by our team, which finally leads to easy disbursement of funds. Our journey doesn’t end here, we make sure that the suggested product suits the client’s interest, and the client should be in an adequate position to return it within a specified period.

Why choose Terkar Capital?

Terkar Capital is a corporate finance company in India. We are one such financial firm that provides both secured and unsecured business loans in Pune, Mumbai, and across India. Our timely execution and professional services make us different from others. We understand the borrower's needs, strengths, and weaknesses and work hard to provide the best services. If you are looking for corporate finance assistance, here we are!

Frequently Asked Questions on MSME Loans

FAQs on MSME

The micro, small and medium enterprises (MSME) sector is one of the largest providers of employment and industrial output in the country. As much as 45% of industrial production and 40% of India’s exports come from the MSME sector. Hence, the need for business finance is also higher in this sector.

What is MSME?

The Government of India understands the value of the contribution of the MSME sector. There is a dedicated ministry working on this segment. As per the Ministry of MSME – Micro Enterprises are the ones where the investment in plant and machinery is not more than Rs. 25 lacs. Small Enterprises are the ones where the investment in plant and machinery is more than Rs. 25 lacs and less than Rs. 5 crores. Medium enterprises are the ones where the investment in plant and machinery is more than Rs. 5 crores but exceeds Rs. 10 crores.

Who is eligible for MSME Loan?

There is a standard definition given by the government of India.

1. A stabilized business that has been in operations for more than 6 months.

2. A minimum turnover of ₹ 90,000 or more in the 3 months heralding your loan application.

3. The business should not fall under the blacklisted/ejected list for SBA finance.

4. The physical location of your business should not be on the negative location list.

5. Trusts, NGOs, and charitable organizations are not acceptable for small business loans.

If you are not aware that your business falls under a restricted category or location, you can contact us to confirm your eligibility.

How can I get a loan for MSME? OR How to apply for an MSME loan?

If you are looking ahead to avail and make the most out of this ambitious initiative by the management, you must consider Terkar Capital for availing the MSME Loan Scheme, it is a trustworthy lending institution, and even if you are uncertain about the scheme; the executives in Terkar Capital will explain you the complete procedure, client privacy and requirements are prioritized here and it has been helping such small and micro enterprises to flourish over the years.

What are the products under MSME Loan?

Identifying that business loans can be used for setting up a new enterprise or climbing up (expansion, diversification, modernization, technology up-gradation). These can be for the following:

• Acquisition of Plant and Machinery including lab equipment, testing equipment, furniture, electric fittings, etc

• Meeting working capital requirements would be as raw materials, stock-in-progress, finished goods, etc

• Trade Finance (Bill discounting) — for paying the creditors while anticipating payment from debtors

• Launch of new product variety, expansion of business, warehousing need, credit for marketing and advertising purpose

• Additional monetary compensation for any eligible purpose.

What is the interest rate for MSME?

The rate of interest for MSME is always cheaper compared to the loans. However, still, the rate of interest varies and depends upon the end use of the funds and the life of the business.

How Terkar Capital Helps in getting MSME Loan Funding?

Terkar Capital is one of the well-established MSME loan providers in Pune. and working across India. With a highly skilled and dedicated team at Terkar Capital, we ensure that we fulfill our client’s needs and requirements. We provide multiple solutions to our clients with the best interest rate options. However, the relationship doesn’t end with the sanctioning of the loan. We maintain a lifetime relationship with the customer to be of help whenever required.

CGTMSE scheme FAQs

 

FAQs on CGTMSE

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust inaugurated by the Ministry of Micro, Small and Medium Enterprises, the Government of India, and the Small Industries Development Bank of India (SIDBI). Launched on 30 August 2000, the main purpose of the CGTMSE scheme is to provide credit guarantees to financial institutions that grant loans to SMEs and Memes.

What is CGTMSE Meaning?

The basic purpose of CGTMSE is to encourage first-time entrepreneurs to build SMEs and MEME, estimated to support the Indian economy by availing of collateral-free loans from qualified financial institutions. The guarantee includes default by the borrower to repay the advance. Thus, the CGTMSE scheme essentially considers the requirement of loans to first-generation administrators so that they can flourish in a competitive environment without the burden of security or third-party guarantees. In turn, the financial institutions are given cover for the lack of security to fund SMEs and Memes promoted by small Indian businessmen up to a certain limit.

CGTMSE – A Driving Force for MSMEs

What are CGTMSE Fees?

The fees charged by the trust fund are 1% p.a of the amount so approved:

1. 0.75% – for loans of up to Rs. 5 Lac

2. 0.85% for loans above Rs. 5 Lac but up to Rs. 100 Lac.

The credit guarantee available below this scheme is 75/80% of the amount so transmitted to a maximum cap of Rs. 62.5 Lac / 65 Lac for a loan facility of up to Rs. 50 Lac. The percentage guarantee implies 85% for micro-enterprises for a sum of up to Rs. 5 Lac. The percentage of guarantee is 50% of the amount so approved for a credit of above Rs. 50 Lac with a maximum limit of Rs. 100 Lac. The ownership of the guarantee is a block of 5 years.

Does CGTMSE cover retail trade?

CGTMSE Coverage extended to Retail Trade & Collateral Loans too – Now Retail Trades & partial collateral loans may be included under the Credit Guarantee Scheme of CGTMSE. A decision in this opinion was taken under “Rebooting CGTMSE” established by the Ministry of MSME and CGTMSE on February 20, 2018.

 Following modifications were suggested for implementation:

1. Charging Annual Guarantee Fees (AGF) on Outstanding Loan Amount somewhat than the sanctioned amount.

2. Extending the Coverage of the Credit Guarantee Scheme (CGS) to cover the MSE Retail Traders section.

3. Providing loans with Partial Collateral Security “Hybrid Security” under Credit Guarantee Scheme.  

4. Increase in the extent of guarantee coverage to 75% from the existing 50% for proposals above ₹50 Lac.

5. Intensifying the IT infrastructure of the Trust to develop operational efficiencies and reduce the turnaround time for claim settlement.  

6. Augmentation of the corpus of the Trust from Rs. 2,500 crore to Rs. 7,500 crore

7. To increase coverage of the loans covered under the credit guarantee scheme from Rs. 1 crore to Rs. 2 crore

8. To increase coverage of the credit guarantee scheme for loans being enlarged to micro and small enterprises by NBFCs also.

Understand CGTMSE scheme execution.

What is CGTMSE Loan Interest Rate?

All lenders impose a particular cost on the borrower. The important part of the cost to the borrower is the interest rate for the loan. The majority of the lenders recover the CGTMSE loan interest rate that does not exceed 14% PA including the guarantee cover. Most of the time the rate of interest varies as per change in the financial institutions and the facility which is available under CGTMSE.

What is CGTMSE Full form?

The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises which gives funding to financial institutions to help SMEs and MSMEs.

How to apply for the CGTMSE Scheme?

To apply for a CGTMSE loan, you are required to set up a business plan including business model, projected goal, etc., and obtain certain business documents if you have just registered your business. Once you have all the essential documents and business plans prepared by a professional, you can apply for the loan with eligible moneylenders. They will analyze your business model and application. If the bank is satisfied, it will process the request to CGTMSE for getting a guarantee cover and confirm the loan amount after CGTMSE approves your application and you pay CGTMSE loan fees.

It reaches out even to the rural areas. The application can be made particularly if the applicant is eligible for a loan under the CGTMSE scheme.

How does Terkar Capital help in getting CGTMSE Exposure?

For many years Terkar Capital has worked extensively and exclusively for raising the finances for the businesses. With respect to the company and its financials, we arrange the source of the funding for the company. And CGTMSE loan is among them. There are many financial facts, and figures that need to be considered before one shall proceed on the CGTMSE. We analyze the financials, and business and arrange the whole execution with the best suits facility under CGTMSE.

CGTMSE – A Driving Force for MSMEs

Loan under CGTMSE scheme

CGTMSE scheme

All the emerging businesses in India, be it micro, small, or medium are in constant need of finances. Such a need can arise due to several reasons such as expansion, purchase of heavy machinery, payment to creditors, working capital issues, or paying off business dues. But many times due to less knowledge of finance they do not receive proper guidance on the cause. Hence, Terkar Capital comes into the picture for providing consulting on raising finances. We have a variety of products available in secured as well as unsecured funding based on the requirement of the borrower. CGTMSE can be the best option for Small and Mid-size enterprises to raise finance which acts as a major source of funds for them

Features of the scheme

1. The initiative was launched to help small businesses grow in a competitive market and assist entrepreneurs to build their businesses and avail of collateral-free loans easily and conveniently.
2. The scheme also aims at strengthening the credit lending facility to developing industries and helping them raise funds for the same.
3. Being a collateral-free loan, the process is quite quick and convenient.
4. It has the facility of guarantee cover for their lenders which will cover their loss in case of default by the borrower. The guarantee cover will exist until the total tenure of the loan credit.
5. The guarantee coverage of the scheme ranges from 70 to 85% in case of non-payment by the borrower.  
6. CGTMSE has a guarantee cover of 50%/75%/80%/85% as per the diverse eligibility criteria.
7. The maximum number of funds availed in this scheme is Rs. 200 Lacs.
8. CGTMSE

provides good guarantee covers to North East Region Women Entrepreneurs as well and encourages them to expand their businesses.

The rate of interest may differ as per the market conditions

Procedure for CGTMSE scheme

1. Prepare a project report/ business plan

The crucial step is preparing the project report or a business plan. It has to be submitted to the lending company. Here the lending company will scrutinize whether the company is eligible under the scheme or not.

2. Scrutiny of documents

The lending institution or company will do a thorough investigation of the required documents and proceed with loans.

3. Sanction the loan

The lender will sanction your loan after duly verifying your documents

4. Obtain CGTMSE cover

Once the loan is sanctioned by the bank, the bank will apply to the CGTMSE organization and obtain CGTMSE scheme cover for the loan sanctioned. After obtaining the loan, the customer will have to pay services charges or fees as per the requirement.

Eligibility for CGTMSE (Borrower)

1. The applicant must be categorized as micro and small enterprises.
2. CGTMSE cover is available for Loans to Micro and Small Enterprises (MSE) engaged in manufacturing or service activities.
3. CGTMSE cover is not available for loans to enterprises engaged in retail trade, educational institutions, training centers, self-help groups, and agriculture.
4. The business must have at least 3 years of continuity

Eligible Lending Institution:

CGTMSE has designated Member Lending Institutions (MLI) which can provide loans to MSMEsIn this list, there are Government Banks, Scheduled Commercial Banks, Regional Rural Banks, NBFCs, Financial Institutions, etc. who have signed an agreement with the CGTMSE ministry.

Why Terkar Capital?

If you are looking for a reliable consultant for raising finance, Terkar Capital can best suit you. It is one of the most modernized and highly specialized finance facilitators in Pune, Mumbai, and India. We understand the borrower's needs, strengths, and weaknesses and work hard to provide professional services. Our timely and professional services make us different from others. Apply for a CGTMSE loan with Terkar Capital.