What is Drop-line Overdraft (DLOD)?

 

Drop-line Overdraft (DLOD)

Drop-line Overdraft (DLOD) is a facility granted to the customer by the financial institution where businesses can overdraw from their current account up to a limit that is agreed upon by the banker. Overdraft is one of the most efficient forms of borrowing as one needs to pay interest only for the amount of money withdrawn. 

The Drop-line overdraft is almost similar in all the cases except in new cases as there is the availability of the limit. This withdrawal limit reduces each month from the limit which is sanctioned. The calculation of the Interest rate is done on a daily basis and it is charged at the month's end. You will be charged only for the amount used, you can always park your funds in a virtual account whenever funds are not in use.

 

Features of Drop-line Overdraft:

1. It can come in both forms of loan i.e. Secured and unsecured loan

2. In case one opts for unsecured DLOD, there is no requirement of any collateral to be provided.

3. DLOD is a hybrid of both term loans and overdraft facilities.

4. The limit of the withdrawal reduces monthly from the sanctioned limit.

5. The facility is only available for the current account, which means the amount is only credited to the current account from the bank.

6. The interest is calculated on a daily basis as the amount is withdrawn and is charged only on a monthly basis.

7. DLOD is the best facility for manufacturers, retailers, traders, and service providers.

8. There is no kind of yearly renewal charges levied.

Who is eligible for the Drop-line Overdraft facility?

The DLOD facility can be availed by any entrepreneur, proprietors, self-employed professionals, private companies or partnership firms, etc.

 

What are the documents needed for the DLOD facility?

General requirements

• KYC Documents of borrower and co-applicants.

1. Aadhar Card

2. PAN Card

Statutory documents

In the case of a Proprietary Firm:

1. Shop Act

2. GST certificate

3. Udyog Adhar certificate

In the case of Partnership Firm:

1. Shop Act

2. GST certificate

3. Udyog Adhar certificate

4. Partnership deed 

In the case of a Private limited company:

1. Certification of incorporation 

2. AOA

3. MOA

Income documents

1. Last 3 years Financials (audited)

2. Last 3 years ITR

3. Existing loans status

4. 1-year Banking

Why Terkar Capital for DLOD Facility?

If you are looking for an institution that you can rely on for availing Drop-line Overdraft facility, Terkar Capital is the one you should reach out to. We at Terkar Capital work for corporate to raise the funds and will make sure you have a hassle-free experience in the funding. Our transparency, confidentiality, and professionalism make us efficient to operate and arranging the funds. So whatever and whenever the requirement is, Terkar Capital will be ready to serve you.

Learn more about the Letter of Credit Discounting Facility

 Every business needs a fund for running its operations, be it for starting a company, expanding a company, purchasing machinery, or working capital needs. The major requirement of finances for many businesses is working capital. Traditionally, most of the working capital financial instruments were secured, where one must have some kind of collateral against the loans. But, now there are unsecured working capital instruments that avail loans even without collateral.

LC Discounting

The letter of credit is the financial document issued by a banker where a guarantee is given by the bank to pay the seller for the buyer’s obligation, in case a buyer fails to make the payment. LC discounting takes away the risk and gives assurance to the seller for the funds. Such an instrument is used in international trade mainly where the buyer and seller are unknown and have to risk a transaction between each other. There is the involvement of majorly 4 parties in such a transaction namely: Exporter, Exporter’s Bank, Importer, and Importer’s bank. The request for LC can be done by both a buyer and seller and the terms and conditions are decided mutually between them.

Features

1. LC Discounting speeds up the cash flow of the business organization and assists in working capital management effectively.

2. The risk of a transaction is resolved by such an instrument and hence gives assurance to both the parties involved.

3. The following are the benefits to the parties.

• The seller gets immediate cash flow for his business

• The buyer gets a credit period for making payments

• The bank receives interest for the said services

4. LC is discounted only after checking the authenticity of the payment from the buyer, which proves that the instrument is safe and secure in funding.

5. LC discounting can be availed by both domestic and international customers, but it is majorly used in international transactions.

6. The relationship between the exporter and importer is developed well and there is a smooth working of the entire procedure.

Process of LC Discounting

1. In the case of a manufacturing or trading company, the sellers may require funds immediately and cannot wait for the due date. In such a case, LC Discounting plays a major role in assistance to eligible sellers.

2. Buyers on-demand from the seller request Letter of credit (LC) from the respective banks before shipment of goods and send the same to the seller/exporter bank.

3. The exporter bank checks the document and communicates the acceptance to the seller.

4. The exporter receives the Letter of Credit and requests discounts.

5. Hence. The bank discounts the LC after deducting the charges or discounting fees. The exporter gets the money and uses the same for his business expenses.

Example

Let us suppose that “ABC Private Ltd” is a company engaged in manufacturing situated in India. The company receives an order of goods from a foreign country “XYZ Private Ltd” which is asking for a credit period of 60 days for the payments of goods. Being unknown to each other, “ABC Pvt Ltd” demands a Letter of Credit from “XYZ Pvt Ltd” and sends it for confirmation towards “ABC Pvt Ltd” who checks the letter and accepts it and can discount the same. By discounting the LC, the seller will get the immediate cash flow and do not have to wait till the end of the credit period.

FAQs

When is the requirement of LC?

The main requirement of LC is when the parties are unknown and have to risk transacting with each other. It is used mostly in international transactions.

Who can avail LC Discounting facility?

All the eligible businesses who are engaged in manufacturing or service industries can apply for such a facility. It can include selling or shipping goods, trading businesses, or other related businesses.

How much is the interest charged for discounting?

The interest/fees depend upon the amount of the transaction, the Credit score of the buyer, the history of the debtor, etc., and vary according to the clients.

What are the documents required for discounting LC?

The documents include shipment and insurance bills and original LC issued by the buyer’s bank.

How does Terkar Capital help you?

Terkar Capital is one such financial consultant that arranges both conventional and non-conventional debt products for their clients. We have a team of experts who constantly help the borrower in all the steps, right from the first meeting to the repayment of funds. Our timely and efficient services make us different from others. So whenever it is raising funds, Terkar capital is ready to serve you at best!