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 Overdraft is one of the most efficient forms of borrowing as one needs to pay interest only for the amount of money withdrawn.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 The interest is calculated on a daily basis as the amount is withdrawn and is charged only on a monthly basis.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.

‌Everything you need to know about CIBIL score

 

What is a CIBIL Score?

In the year 2000, Trans Union CIBIL was incorporated as Credit Information Bureau of India Limited. This organization issues a score called a CIBIL score for a borrower. It is also known as credit score. This score denotes the creditworthiness of the borrower and his ability to repay the loan on time.

What is a Good Credit Score?

A person who has a good Credit Score has the ability to repay the loan with interest on the given time to the bank. A Score is a three-digit number calculated on the basis of the financial history of the applicant. It ranges from 300 to 900. The higher the score the better chance of your loan being approved. 79% of the loans approved are for those who have a score of 750 or more, says CIBIL’s analysis. Learn more.

Factors affecting CIBIL score

The score is based on several factors. Such as your payment history, types of credit and number of loan accounts, guarantors on the loan, credit history, opening and outstanding loan amount, and so on. Different financial institutions have different regulations and benchmarks with respect to the score.

CIBIL score is like the first impression of the borrower for a financial institution. A person who manages his finances well will always have a higher score. A lower CIBIL signifies that the borrower has low creditworthiness and lenders refrain from giving loans to such applicants.

Did you know? How does a CIBIL score affect your loan eligibility?

Advantages of a Good Credit Score

A high Credit Score leads to several advantages for a borrower. Here are a few key advantages:

1. Credit from Lenders

If an applicant has a good CIBIL score, he may get a loan from a financial institution with a lower interest rate and minimum documentation. However, if the CIBIL score of a candidate is low, the financial institution may reject his application for a loan or offer it at higher rates of interest.

2. Quick Approval

A high CIBIL score states that you have good creditworthiness. Also will repay your loan on time to the lender. Therefore, the financial institution will process your loan faster. The ones who have a low CIBIL Score may have to submit a number of documents and find guarantors making the loan disbursal process time-consuming.

3. Low-interest rate

Those who have a higher CIBIL, get a loan at a lower interest rate than the ones who have a lower one. This is because when one has a higher CIBIL score, the banks trust the borrower more than the ones who have a low one.

4. More Negotiation

For people who have a higher score, the financial institutions will grant loans to them quickly and at a low-interest rate. Therefore, they get more negotiation authority to negotiate with the banks for a lower interest rate.

5. Higher Limit Loans

With a good CIBIL, you may get the loans to the upper limit. Therefore, you should definitely do your CIBIL report check.

6. Easy Approval for Leased Properties

A good credit score assists us to get easy approval for loans even for rented or leased properties. Like commercial complexes, apartments, and so on.

7. Amazing Credit Card Offers

If you have a good score, you may also enjoy credit card offers from various banks. These cards generally have higher limits, more privileges, and amazing offers and cash-backs.

What is your CIBIL score? Check out here.

To conclude

A CIBIL is also known as a Credit score. is a very important factor while applying for a loan. Financial institutions, banks, and other agencies consider this when evaluating the creditworthiness of a person. The higher the credit score you have, the better it is for you. If a person has a low score, it means that he has not been able to pay his bills on time, or has a history of non-payment of bills. A person with a low score might not be able to get the best interest rates from a bank, or might not be able to get a loan at all.

 

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!

Frequently Asked Questions on Project Funding

 

What is the meaning of Project Finance?

Project Finance is the financing of long-term, industrial projects, infrastructure projects, or public services using a limited recourse financial structure. Project financing addresses the funding requirements for the exclusive project. We can say that in Project funding, the project itself is collateral. When the project is completed, the revenue generated by it will be used to repay the loan. Project financing relies on the project’s cash flow for repayment, with the project’s assets, rights, and interests held as secondary collateral.

 

What are the characteristics of Project Finance?

• Non-recourse Financing

Non-recourse financing means that the borrowers and shareholders of the borrower have no personal liability in case of monetary default. Any recourse the lender may have will be limited primarily or entirely to the project assets if the project company defaults on the debt.

• Project Finance Documents

Project financing requires a detailed project report. This is the most important document to take the proposal ahead. 

• Many Project Participants 

As Project Financing is generally used for the long term, big scaled projects, several project participants are involved. This is helpful for the smooth running of the project financing process. Financial institutions don’t want to be in a position where the failure of one project or one borrower is large enough to cause their failure. Thus, having several project participants is useful. 

• Capital-Intensive Projects 

Project financing involves large amounts of funding because it is generally used to fund major international development and infrastructure projects. Thus, project financing finances capital-intensive projects.

• Special Purpose Vehicle 

The SPV (Special Purpose Vehicle) checks the proceedings of the project and also maintains a line of sight at the assets. After the completion of the project, asset allocation is processed with regard to the Special Purpose Vehicle which monitors all the processes.

• Revenue from the completed project used for Repayment

In Project Financing, the cash flow that the project generates after completion is used to repay the loan.

What is the importance of Project Finance?

In the past few years, global interest in Project FInancing as a tool for economic investment has increased. Project finance helps finance new investment by structuring the financing around the project’s cash flow and assets, without any additional sponsor guarantees.  Project Financing thus alleviates investment risk and raises finance at a relatively lower cost while benefiting the sponsor and investor. 

• Retains Confidentiality 

Financing projects through Project Finance enables the sponsors to retain the confidentiality of vital information regarding the project which is going to be financed and helps them to keep up with the competitive market through competitive advantage.

• Extending the debt capacity 

The debt may not fall on one lending institution or investment firm due to the presence of multiple entities. So the debt capacity increases due to syndication in Project Financing. 

• Free Cash Flow and no conflicts 

Through Project financing, the providers of funds manage the free cash flow that is left over after paying the operational and maintenance expenses and other statutory payments. The project company has a finite life and is limited to the project there are usually no conflicts of interest between investors and the management of the company. 

Project Finance process/ How do you get Project Funding?

Step 1) Pre-Financing 

• Identification of the Project Plan 

In this stage, the lender primarily ensures that the project plan is aligned with the goals of the financial services company. This step includes identifying the strategic plan of the project and analyzing whether it’s reasonable or not. 

• Check and Minimise Risks 

The lender should check the risks involved in the project and if the project has the resources to avoid any risks. Risk management is essential before the lender begins the Project FInancing venture. 

• Analyze the Project Feasibility 

When a lender decides to invest in a project, he should check if the project is financially and technically feasible. This can be done by analyzing several factors in the project.

Step 2) Financing 

• Arranging Finances 

Financing the Project is a crucial part. The sponsor should get a loan from a financial institution whose objectives and goals are in line with that of the project. 

• Negotiation of the Loan

Negotiating is an important part of Project Financing. The lender and the borrower negotiate the funding until they reach a unanimous agreement. 

• Documents and Verification  

The terms and conditions of the loan have to be mutually decided by the lender and the borrower. Once they decide on the terms of the loan, then the documentations take place. 

• Disbursement of the Loan

The borrower receives the funding as and when the negotiations are done and the documentation is completed. 

Step 3) Post-Financing

• Monitoring of the Project 

As the work for the project begins, the project has to be monitored in a timely and organized manner by the project manager. 

• End of the project and Repayment 

After the project has been finished, it is necessary to keep track of the cash flow from its operations. This is because the funds from the cash flow and revenue will be used to repay the project funding.

  

Why Terkar Capital for Project Funding?

At Terkar Capital, we provide consultation for all kinds of investment banking and capital funding. We believe in supporting and creating opportunities for SMEs and large businesses across India. The objective of the company is to reach sectors of MSMEs that are not organized and financially excluded. The goal is to make finances available at a reasonable cost and deliver transparently.

Difference between Bank Guarantee & Letter of Credit

Bank Guarantee Vs Letter of Credit

A Bank Guarantee and a letter of credit are promises from a financial institution. A borrower will actually want to reimburse an obligation to another party, regardless of the account holder’s financial conditions. While different, both bank guarantee and letter of credit, guarantee the third party that if the acquiring party can’t reimburse what it owes, the financial organization will step in for the benefit of the borrower. A Bank guarantee is similar to a Letter of credit but not the same. Let’s understand the difference between a bank guarantee and a letter of credit.

What is Bank Guarantee?

A bank guarantee refers to a contract. Wherein the bank gives the guarantee on behalf of the customer to the beneficiary, that the bank will be responsible for payment, In case the customer defaults in discharging obligations. BG settles the debts of the debtor. Thus, in case the borrower defaults on the loan, the lender promises to pay.

Understand Bank Guarantee in detail.

Types of Bank Guarantee:

1. Confirmed Payment Guarantee

This is an irrevocable obligation, with this a specific amount is paid by the bank to a beneficiary on behalf of the client by a certain date.

2. Shipping guarantees

A written guarantee is presented to the carrier in the event of goods arriving before the arrival of the shipping documents.

3. Loan guarantees

An institution that issues a loan guarantee pledges to take on the financial obligation if the borrower defaults.

How does Terkar Capital execute the bank guarantee instrument?

What is a Letter of Credit?

A letter of credit is a financial document for assured payments. i.e. An undertaking of the buyer’s bank to make payment to the seller, against the documents stated. The bank issues a letter of credit. In case, the buyer makes a default payment, the bank gives a guarantee to pay. So, LC discounting takes away the risk. The seller gets assurance for the funds.

Types of Letter of Credit

1. Irrevocable letter of credit

An irrevocable letter of credit is a guarantee from a bank, issued in the form of a letter. Thus, an agreement is created. Wherein the buyer’s bank agrees to pay the seller as soon as certain conditions of the transaction are met.

2. Confirmed letter of credit

This refers to an additional guarantee obtained by the borrower in addition to the first letter of credit from another bank. This is done in case there is an issue with the credibility of the first bank issuing LC.

3. Import letter of credit

Import letter of credit is issued by the importer’s bank on behalf of the importer with the exporter being the beneficiary. A guarantee is given by the importer bank that the payment will be made to the seller/exporter.

4. Export letter of credit

The letter of credit, when received by the exporter’s bank, becomes an export letter of credit. Before the exporter can receive payment, he has fulfilled certain terms and conditions and submitted the required documents as mentioned in the letter of credit.

5. Revolving letter of credit

A single revolving letter of credit can cover several transactions between the same buyer and seller.

How Terkar Capital executes a Letter of credit instrument?

Why choose Terkar Capital?

Terkar Capital provides top investment banking services in India. We consult the aspiring entrepreneurs and promote seamless funding solutions to them. We arrange and provide a wide range of products as per the clients’ needs and expectations. Our team of experts constantly guides the clients in each and every step of the funding process. Thus, preserving the confidentiality of the respective clients.