What is Bank Guarantee? Features, Process, and its Difference from Letter of Credit

Bank Guarantee Services

Every business needs a backbone of funds. It is for its effective operations and to maintain the competition in the market. Moreover, there are several debt instruments available for funding. While Bank Guarantees are used the most. In this article, we’ll shed light on what is a bank guarantee, its key features, its process, and how it differs from the Letter of Credit. 

What is Bank Guarantee?

The bank guarantee is a commitment provided by the buyer’s bank. It ensures that if the buyer fails to fulfill their obligations or make the payment, the bank will step in and make the payment, up to the specified amount mentioned in the guarantee. The lending institution offers Bank Guarantee (BG) as a financial instrument. However, the lender will ensure that the liabilities of a debtor will meet. In other words, the lender promises to cover a loss in case the borrower defaults on the loan. In the process of BG, four parties are involved in the transactions. Those are the applicant/ borrower, the issuing bank, the beneficiary and the beneficiary bank.

Features of Bank Guarantee

• BG builds confidence between the lender and the borrower. It adds assurance of transaction between an exporter and an importer. The primary reason for opting for BG is that many times the exporter and importer are unaware of transacting with each other. So, there can be a risk in the transaction. Hence, to overcome this risk involved, Bank Guarantee clears the hurdles.
• The BG obtain for a specified period. It is as per the need and requirements of the borrower. The applicant can hold the BG only up to a specified period, they can further renew it after maturity.
• The bank guarantee can or cannot hold assets against the instrument. The collateral depends upon the availability of the asset and the terms & conditions of the agreement between the lender and the borrower. It is also obtained without collateral.

Parties Involved in the Bank Guarantee Process 

• The applicant (importer): who requests BG from his banker as per the demand from the beneficiary
• The issuing bank: as per the request from the applicant, the bank issues the BG on the beneficiary’s bank.
• The beneficiary (exporter): is the party who demands BG.
• The beneficiary’s bank: is the one who receives the BG on behalf of the beneficiary.

How does a bank guarantee work?

“ABC Pvt Ltd” is an exporter company that deals with “XYZ Pvt Ltd”, and an importer. The exporter shipping goods requests the importer to get the Bank Guarantee from his banker. The banker on demand from the customer applies for BG and reduces the risk involved in the transactions. After receiving the BG, the applicant submits a copy to his other party which eases the procedure in the business operations. Here, “XYZ Pvt Ltd” is the applicant, the bank is an issuing party and “ABC Pvt Ltd” is a beneficiary.

In case of non-performance or default, the beneficiary can submit a claim to the bank.  The bank evaluates the claim and, if valid, settles the claim by making payment or fulfilling the obligation as specified in the bank guarantee.

Apply for Bank Guarantee

• The parties while transacting with each other, the exporter demands BG from the importer.
• The importer requests his bank for the BG and submits the necessary documents.
• After preparing BG, the bank communicates the same to the importer.
• The importer then requests the bank to send the BG to the exporter’s bank.
• The exporter’s bank on receiving BG communicates the same to the exporter.
• The exporter then ships the goods towards the importer after receiving the BG from the importer.

Here is the case study of the Bank Guarantee Process.

Difference between a Bank Guarantee (BG) and a Letter of Credit (LC)

In the case of BG, payment has been made only in case of a default of the buyer. And, in the case of LC, payment has been made on behalf of the customer after receiving the goods.

In the case of BG, payment is made at the non-fulfillment of the transaction between the parties. Whereas the LC payment is made only after the fulfillment of the condition specified.

To learn the difference in details Read here. 

Terkar Capital: Bank Guarantee Provider

At Terkar Capital, we specialize in assisting aspiring entrepreneurs and providing them with seamless funding solutions. While Bank Guarantee is among them. We understand the unique needs and expectations of our clients, and accordingly, we arrange and offer a wide range of financial products. Our team of experts is dedicated to guiding clients through every step of the funding process, ensuring their success while maintaining strict confidentiality.

Myths About Debt Funding

Debt Funding

For starting, expanding, or running a business, funds are of prime importance. These funds can be raised in two ways, debt and equity funding. Equity Funding is raising finances by selling the shares of a company. Moreover, debt financing occurs when a company borrows money to be paid back at a future date with interest. This is available in both secured and unsecured funding. The funds can be sourced through Banks, NBFCs, or Financial Institutions.

But there are certain myths and misconceptions associated with how to obtain debt funding. Below are a few of them:

1. Funding requires high collateral

Traditionally, the debt instruments used to come up with collateral, but now it can be availed even without collateral. The collateral-free loans may have more interest rates as compared to secured ones. In the case of secured funding, the amount of collateral and the amount of loan should match. Whereas, in the case of unsecured loans, the funds are even disbursed based on the credit score of the borrower and his relationship with his banker.

2. The process of funding takes a longer time

The funding procedure depends upon various factors. The lender has to submit a variety of documents like KYC, financials, and specific documents. Even though the process looks lengthy, we arrange it as fast and quickly as possible. Now the clients do not have to wait for months for disbursement, it can be done in merely days.

3. Only the lower amount is financed

The clients now can avail a higher number of finances too. The only restriction is eligibility. Once the client has a creditworthy score and fits into the eligibility criteria, the higher amounts can also be availed through both secured and unsecured ways. 

4. The ROI is high in case of unsecured funding

The ROI majorly depends upon the availability of collateral, CIBIL score, and other economic criteria. The higher the ROI, the greater will be the risk, and the lower the ROI, the lesser will be the risk. Hence, the ROI totally depends and changes from case to case.

5. Debt funding come up with heavy risk

The loans used to be risky earlier, but today if you are doing it with the right lender, then there is no need to worry. We at Terkar Capital help to bridge the gap between eligible borrowers and capable lenders. We understand the needs and requirements of the clients and work accordingly with arranging quality and transparent procedures which vanishes the risk in funding.

6. Fewer products available in debt funding

This is not the truth, as there are several debt products available in the market that one can opt for and avail of services. There are conventional as well as non-conventional debt funding options. The products are chosen depending upon the financials and credit score of the clients.

7. No flexibility in funding

The debt funding has flexible options to carry out. Also, many services provide smooth repayment options which makes the funding work hassle-free.

8. You cannot use mortgaged property or assets.

Most borrowers worry about whether they can or cannot use the mortgaged property. Moreover, the property for a mortgage is either a residential or commercial one, which cannot be kept vacant or unused. As long as the borrower does not default on his or her loan payment EMIs, he or she can absolutely use the mortgaged property.

Why Choose Terkar Capital?

We at Terkar Capital understand the customer's needs, strengths, and weaknesses and with respect to the edges, we arrange the best funding solutions. Our trained executives will assist you in the entire procedure while applying for loans. Even after the disbursement of the loan, if the client faces any issues, we are available to help until the end of the tenure of the loan. We have expertise in the analysis of the market and offer a reasonable ROI to borrowers. Apply now at ease!

 

Loan (Debt) Syndication FAQs

 

 FAQs Loan Syndication

Syndication is a concept that is in widespread use today. Syndication takes place when a loan asked by a business or corporate is too large for one financial institution to lend. There are different aspects of loan syndication including syndication and consortium. Here are some of the general Questions which customers ask about syndication:

What is meant by loan syndication?

Loan syndication is a process by which more than one lender is involved in funding a loan for a business or corporate. This group of lenders lends various portions of the loan. Loan Debt Syndication is generally undertaken when the amount required by the business is too large for one financial institution to lend or when the loan is not within the scope of a lender’s risk exposure levels. Various lenders form a syndicate and provide the business with the required funds.

 
What is the difference between syndication and consortium?

A consortium is successful when one single financial institution cannot fund the loan amount to the borrower. Various financial institutions club together to supervise the said loan amount. A consortium unlike syndication is not built to deal with international transactions. A consortium is usually bound by a legal contract that delegates responsibilities among its members.

Loan Syndication also involves multiple lenders and a borrower but loan syndication generally involves international transactions and sometimes different currencies. Loan syndication is usually headed by a managing bank that is approached by the business to arrange the credit. This managing bank is generally responsible for negotiations of conditions and arranging the loan.

 
What is a syndication agent?

A syndication agent is generally a bank or a financial institution that acts as an agent for a group of lenders in the process of syndication of a loan. The syndication agent plays a key role in the syndication of loans for businesses and corporations. The syndication agent should be reliable and can negotiate the rate of interest and other terms and conditions for the borrower, so the borrower can get the best deal from the market.

Why are loans syndicated?

Loans are generally syndicated because one financial institution cannot lend the entire amount of money to the borrower. For example, a business may need a large number of funds. If the amount is too large for one bank or financial institution, then the business can be given funding through loan syndication. Loan Syndication can be used in cases when the amount to be lent is too large and too risky for one financial institution to lend.

Why Terkar Capital for Debt Syndication?

If you’re looking for effortless and trustworthy debt syndication services in India, Terkar Capital is the best place for you. We provide expert analysis of the product and we choose the right lenders for the syndication. We also boast of quick turnaround time and provide timely and optimum availability of funds. Our expert team will provide you with the complete and perfect end-to-end execution of the syndicate process.

How to get Project Funding?

 

Project funding in India

Project Funding

A lot of us have a dream of making our project successful and known to the world. All we need is a little push, it could be motivation, it could be one missing bit of a brilliant idea, or it could be the lack of funds. Project funding in India is one of the most important yet not widely known aspects of aspiring entrepreneurs. Before going ahead with the process to get a project financed, it is essential to understand what exactly project funding means.

What is Project Funding?

There are different kinds of requirements at the time of starting a project. Project funding is among the most basic yet significant parts of any business venture. These are the funds that are generated in order to pay for the initial labor, capital, and other requirements. A project loan is provided for new business setups, reconstruction, or expansion of an existing business enterprise.

What are the Criteria for Project Funding?

Project finance is provided considering certain important aspects on which the amount is decided. The criteria that matter at the time of proposing project finance are as follows:

1. Project Viability Analysis:

The viability of the project is decided based on its economic merits and demerits. If whatever benefits are to be made from the project economically are higher than the costs and expenditure, then the project is considered viable. Such an analysis will allow the funding agency to know if the project is worth financing and if the proposing entity is capable of paying off the loan.

2. Mortgage Available:

In the case of project funding, the mortgage is generally the project itself and the revenue to be generated from it. A loan is provided by the concerned financial institution if there is enough mortgage available on the project. The lender has to see potential in the venture to be able to sanction the loan.

3. Payback Period of The Project:

If the project seems to take too long and there is no sooner way to generate revenue, there are chances that the proposal may even get rejected. There are certain professional consultants who will help you in drafting a proposal that will increase your chances of obtaining project funding.

4. Personnel Profile and Experience:

In other words, the businessperson’s ratings are considered at the time of deciding the amount of funding that can be provided. If the proposing personnel has considerable experience in the commercial world, the chances of getting the project finance sanctioned are quite high. If there are any issues found with the personnel or the project, the project may get rejected. Acquiring professional assistance can help you get through to the funding agencies conveniently and help get your project approved.

Location and Market Demand for Product

The location and the requirement of the product or the service the project seems to sell must be well enough to give the lenders assurance that the project will be successful and the borrower will be able to repay the loan in time as well. If the product is common and easily available, there are chances that this can get the proposal rejected.

Who can provide Project Funding in India?

Even though there are multiple agencies operating in the debt market, there are limited sources to acquire project funding. Mainly, the government and the cooperative banks are the ones that provide such kinds of finances if your project is pleasing enough for them. Else, there are quite limited project funding agencies in India. It is essential to find a trustworthy yet providing funding agency for the project proposal in India as these generated funds are the backbone of your dream project.

Project Funding at Terkar Capital

Terkar Capital provides services of project finance in India. It is known to provide maximum finance with minimum collateral letting even the young and beginner entrepreneurs build an eminent commercial organization. The funds can be generated as per the requirement, be it periodically or all at a time if the project proposal has influenced the provider enough.

Services are confidential and the level of integrity in the utilities is well-maintained. The processes are not hidden from the customer and the services are in the best interests of the clients including HNIs, SMEs as well as startup companies. The safety of the transactions is ensured by helping the seekers build a future for themselves.

How to qualify for a business loan in India?

 

FAQs to qualify for a business loan in India

Business loans are loans taken by businesses or corporations without collateral. These loans are convenient for businesses to manage emergency monetary requirements. The procedure to get Business Loans in India is easier and quicker. Thus your loan will be sanctioned faster. Here are some frequently asked questions by our customers:

What are Business Loans?

Businesses today face several challenges. One of those challenges is the requirement of collateral for getting a loan from financial institutions. Many small and medium-scale businesses today do not have collateral for loans. These businesses can take a Business Loan. An unsecured business loan is given solely upon the creditworthiness of the businessman borrower. To be eligible for an unsecured business loan, the borrower should have a good credit rating, a good credit history, and a good cash flow.

Why should you take a Business Loan?

• Helps your business grow at a faster pace

By taking a business loan your business can grow at a faster rate. You can also finish any stagnant projects or ventures with the help of a business loan.

• The value of the loan is not dependent on the collateral

When applying for a secured loan, the amount of the loan is dependent on the collateral being used. But while taking an unsecured loan, you may get a bigger amount of money because the lender is making decisions on the basis of your cash flow, credit profile, the health of your business, and so on.

• Faster Disbursement of Loans

As a business loan does not require collateral, the disbursement of the business loan is faster. The financial institution checks your documentation, proposal, and track record and then sanctions the loan. Less paperwork is required for unsecured business loans.

• Repayment in EMI

You can repay the business loan in the form of EMIs. The interest rate will be applied to the EMIs over the term of the loan.

• No risk to your assets

An unsecured business loan is a loan where no collateral is necessary. Thus, all your assets are safeguarded from any risks.

Eligibility Criteria for Business Loans

The Eligibility criteria for a business loan may differ depending on various financial institutions and the situation of the business. Here is a list of the general eligibility criteria for a business loan:

1. The business must have its previous year’s financials duly audited by a CA.
2. Borrowers must have a good credit rating in order to qualify for an unsecured business loan.
3. The business should have a vintage of at least 2 years.
4. The business needs to have its Income Tax returns filed for at least the past 1 year

How do you get a Business Loan in India?

Business Loans can be defined as loans given to businesses and corporations against any kind of collateral. It is one of the most convenient financial products for businesses to manage the emergency conditions of the business.

• Assessing the requirements of the client

We at Terkar Capital will first understand the requirements of the client. We will also talk to the client about the future of their business, their plans to expand, restructure so on, and so forth. After assessing the requirements of the client, we will make an application for the business loan.

• Application and Documentation

Many business people have experienced the tedious nature of the documentation that needs to be done for the bank loan process. We at Terkar Capital take care of the documentation. We understand what stakeholders require to disburse the loan to our clients.

Once we receive the required documents we analyze the financials of the company and choose the financial institutions that best suit the client's requirements. This helps to avoid unnecessary inquiries to cibil and mess up while raising the finance.

 

Get your loan

After your proposal and documentation have been reviewed by the financial institution, your loan will be sanctioned. During the process, whenever the financial institution is in need of any clarification or any documentation we arrange for them. Our association with the client doesn't stop with the disbursement of the amount, rather it starts. We make sure the client should not have any problems while dealing with the respective financial institutions during the loan tenure.

 
What are the Documents Required for Business Loans?

Business loans are one of the most convenient types of loans for growing businesses. The documents required for Business Loans differ from one financial institution to another and as per the constitutions of the business. Reach out to us for documents usually required for a Business Loan.

How to acquire a Machinery Loan in India?

Acquire a Machinery Loan in India

Machinery Loan

When it comes to setting up an enterprise, there are a lot of prerequisites that you need to consider. Depending on the type of business, one of the most essential requirements after capital is machinery. At times, the machinery can be quite expensive and may not fit in the budget that has been set for the establishment of the project. In such cases, a machinery loan is an exemplary solution. Getting a machinery loan in India has several criteria to be met and there are different kinds as well, as per the business person’s requirement.

What is Machinery Loan?

A loan that is provided for the purchase of industrial machinery is what is termed a machinery loan. It is generally granted to small and medium enterprises (SMEs) and the loan requirements will also differ from borrower to borrower. The range varies from about 2 lakhs to any amount you need as per your requirement. The tenure can also vary accordingly and can be from 5 years to 7 or 8 years, differing as per the customer. The interest rate for machinery loans in India is generally moderate as well since it is the private institutions that render these loans.

How to Get a Machinery Loan?

Before moving on to the application process, you need to make sure that you are eligible for acquiring a machinery loan. There are certain criteria that you need to match at the time of putting forth your proposal.

These criteria will differ from case to case and so shall the process and document requirements. To understand the process of acquiring a machinery loan, there are a few pointers given below:

Know your requirement

The process to follow depends on the requirement of the firm. This includes what kind of machinery is to be purchased, whether the machine is to be repaired or replaced, or any other requirement. The loan amount and the tenure period will depend on these requisites.

Understand the eligibility criteria

Once the requirements are known, the next thing that matters is the eligibility for acquiring a machinery loan. As mentioned previously, it is extremely important that these criteria are met so that the loan can be granted to the borrower. To know the eligibility, a professional can be consulted to know what is a suitable loan as per the requirement.

Put forth a proposal

After understanding the eligibility criteria and other prerequisites, a proposal for the loan can be drafted. It must contain the details about the machinery, the firm, the applicant, and the amount required. There is other information that is to be mentioned as well which can better be known from a professional consultant.

Fulfill the document requirements

There are documents that are to be submitted once the proposal has been accepted by the lender. The list of documents may differ from case to case and this can be known only after the approval of the proposal.

Documents required for a Machinery Loan

The documents are bound to differ as per the case. Although, there are certain requirements that are common. These are listed as follows:

General requirements

• KYC Documents of borrower and co-applicants.

• Aadhar Card

• PAN Card

Statutory documents:

• In the case of a Proprietary Firm:

• Shop Act

• GST Registration Certificate

• Udyog Aadhaar Memorandum

• VAT Registration

• GST certificate

• Other applicable Registration documents.

In the case of Private / Public Limited Company/One Person Company:

• MOA & AOA

• Certificate of Incorporation

• Certificate of commencement of business

• GST Registration Certificate

• Shop Act

• Udyog Aadhaar Memorandum

• VAT Registration

• Other applicable Registration documents.

In the case of Partnership Firm:

• Registered Partnership Deed

In Case of LLP:

• LLP Agreement

• Shop Act

• Udyog Aadhaar Memorandum

• GST Registration Certificate

• VAT Registration

• Other applicable Registration documents.

Income Documents

• Last 3 years Financials

• IT Returns

• Computation Sheet & Balance-sheet

• Proof of turnover vide latest sales/service tax returns and Invoice/ Purchase Order Copy (for Loan against receivables)

• Last 1-year bank statement of an operative bank account.

• Details of all existing Loans:

• Sanction Letter

• Loan Account Statement for last 1 year.

Machinery documents

• Tax Invoice Copy of the Equipment / Machinery Purchased.

• Proforma Invoice / Quotation of the Machinery to be purchased.

Machinery Loan in India: Terkar Capital

Acquiring a machinery loan in India is a lengthy process and requires patience and understanding of complicated procedures that comprise the loan sanctioning process. However, this can all be made simpler with some assistance.

At Terkar Capital, we have the best customer support and the customer is of priority to us. We do more than just sanction benefitting machinery loans and make sure that the client understands the loan process and provides any other kind of assistance that is demanded.