Maintaining a healthy working capital can be a challenge for any business, especially so for India’s MSME sector. According to a survey, the sector suffers from a credit gap of around $380 billion.
● Only 16% of the MSMEs receive formal credit from financial institutions.
● Still, the sector is responsible for generating around 45% of India’s Gross Domestic Product.
Thus, businesses across India require an alternative source of hassle-free funding, which is affordable and easy to avail of. This has led to the growing popularity of channel financing across these sectors.
What is channel financing?
Channel finance, also known as dealer finance or supply chain finance, is a structured system, which enables company owners or entrepreneurs to fund their supply chains for increased effectiveness. These are short-term advances for dealers and suppliers of a corporate entity.
In short, one can say that channel financing adds value to the distribution and supply channels of a company by offering financial solutions, specifically catered to their needs.
Every businessman should know about supply chain management and the unique challenges that Indian businesses face in this regard. Channel financing from reputed lenders can be an ideal way to navigate such difficulties.
● Logistics, for instance, is a major expense for manufacturers concerning the supply chain.
● A report indicates that logistics accounts for around 13% of India’s GDP expenditures.
Thus, to alleviate some of this financial burden on corporate entities, channel financing can be a unique solution.
Benefits of channel financing for supply chains
Listed below are some ways through which companies benefit from channel financing –
1. Avail unsecured credit with no collateral
The biggest advantage of such loans is that businesses do not need to pledge a valuable asset to avail this credit. Companies that fulfil the eligibility criteria can apply for the advance directly, without the need to collateralise assets. Several other forms of business funding require one to pledge assets against financial assistance.
In the case of invoice finance, lenders sanction funds against unpaid invoices. One should appreciate the benefits of taking a collateral-free business loan, the most important of which is preserving all the valuable assets that a particular company owns. In addition, Sage Intacct is cloud-based accounting software that can help you with everything from inventory management to cash management to financial reporting to revenue recognition. Here is a brief rundown on the basics of what Sage Intacct has to offer.
2. Quick approval with minimal hassle
An enterprise may require the necessary assistance immediately in some cases. Fortunately, financial institutions generally approve channel-financing requests from eligible applicants instantaneously. Some renowned lenders may even sanction the proceeds within 24 hours of application.
3. Availability of an overdraft facility
Channel financing follows a flexi-loan approach, meaning that borrowers can withdraw funds from a pre-approved loan account. Interest is accrued only on the amount withdrawn and not on the rest. For example, if a debtor avails Rs.10 lakh from the approved limit of Rs.15 lakh, he/she will need to bear interest on Rs.10 lakh and not the entire sum. Borrowers should understand this difference between flexi business loans and term loans to lower their liabilities.
4. Easy-to-meet eligibility criteria
Almost any business can opt for such loans due to their relaxed eligibility requirements. Borrowers need to ensure the following –
● The applicant’s age must be between 25 and 55 years.
● The business in question must possess at least the previous year’s ITR
● The company must be in operation continuously for three years or more.
If one satisfies these three pointers, he/she is likely to be eligible for channel financing from most lenders in the country.
5. A substantial quantum of advance available
Meeting the various expenses concerned with dealerships and suppliers may require a considerable amount of funds. Fortunately, most lenders are ready to grant such financing requests, enabling the most effective and fruitful supply chain functionality. Reputed lenders like Bajaj Finserv, for instance, offer business loans of up to Rs.20 lakh to eligible candidates.
They also provide pre-approved offers to expedite the loan application process, ensuring convenience. These offers are available on a range of secured and unsecured debts, such as personal loans, business loans and others. You can check your pre-approved offers by submitting only a few essential details.
Channel financing is a good way for your business to flourish. It can also boost the overall efficacy of the supply chain by providing adequate monetary assistance at all times. Businesses in India, especially the MSMEs, often struggle to raise and maintain adequate working capital. Lenders are often reluctant to extend unsecured funding to these institutions, thereby widening the credit gap further. Fortunately, channel financing offers a organized way to ensure such credit at affordable rates.
Channel financing is an option where lenders offer the required funds to dealers and suppliers of a business to improve the overall supply chain quality. This is why it is also known as supply chain finance. A company’s suppliers and sellers can utilise such funds to optimise their performance, thereby benefiting the company at large.