Working Capital Finance
Working capital finance supports day-to-day business needs through options like bank credit (CC, OD, WCTL), non-fund facilities (LC, BG), trade credit, and fintech/NBFC loans. Equity-based funding and government schemes (like CGTMSE, Mudra) also offer viable support, especially for MSMEs. Platforms like TReDS ease receivables management. Consultants assist with documentation, compliance, CMA data, and loan structuring.
1. Bank Credit Facilities (Fund-Based)
These are the most common forms of working capital finance regulated by RBI:
| Facility Type | Description | Consultant Role |
|---|---|---|
| Cash Credit (CC) | Flexible credit line against stock and receivables. | Help in preparing stock statements, CMA data, financials, projections. |
| Overdraft (OD) | Linked to current account, with drawing limit. | Structure OD against FD, property, or other assets. |
| Working Capital Term Loan (WCTL) | For funding working capital shortfall beyond CC/OD. | Negotiate terms with banks post-assessment. |
| Packing Credit (Pre-shipment Finance) | For exporters to fund raw material procurement & processing. | Prepare export order documentation, and ensure ECB/FEMA compliance. |
| Bill Discounting / Invoice Financing | Discounting of bills raised on customers. | Help select between factoring, invoice discounting or LC-backed bills. |
2. Non-Fund Based Bank Facilities
No funds are disbursed upfront, but banks take exposure:
| Facility Type | Description | Consultant Role |
|---|---|---|
| Letter of Credit (LC) | Guarantees payments to suppliers. | Help with LC structuring, UCP 600 compliance. |
| Bank Guarantee (BG) | Guarantees performance/payment. | Assist with BG limits, renewal, and legal vetting. |
3. Trade Credit & Vendor Financing
Short-term credit from suppliers to buy goods/services:
| Facility Type | Consultant Role |
|---|---|
| Trade Payables Financing | Negotiate longer credit terms. |
| Reverse Factoring | Work with fintech or banks to get vendor invoices paid early. |
4. NBFC / Fintech-Based Working Capital Loans
Fintech and NBFCs offer faster, unsecured loans, regulated by RBI:
| Provider | Consultant Role |
|---|---|
| NBFCs (e.g. Bajaj, Tata Capital) | Compare interest rates, documentation, repayment flexibility. |
| Fintech Lenders (e.g. CredAble, KredX) | Help onboard on platforms, negotiate limits, verify RBI registration. |
5. Equity or Quasi-Equity Based Working Capital
Not strictly under RBI but must follow Companies Act & SEBI/FEMA norms:
| Source | Consultant Role |
|---|---|
| Unsecured Business Loans from Directors | Draft loan agreement, ensure compliance under Co. Act, 2013. |
| Working Capital from PE/VC/Angel Investors | Pitch deck, valuation, and term sheet negotiation. |
6. Government Schemes & Priority Sector Lending (PSL)
Backed by RBI/GoI guidelines (esp. for MSMEs):
| Scheme | Consultant Role |
|---|---|
| CGTMSE | Help avail collateral-free loans up to ₹2 crore. |
| Mudra Loans (Shishu/Kishore/Tarun) | Assist in documentation for micro units. |
| Stand-Up India / PMEGP | Guide application process & post-loan compliance. |
7. External Commercial Borrowings (ECB) for Working Capital
Only allowed under RBI’s Automatic Route to eligible borrowers:
| Consultant Role |
|---|
| Check eligibility (e.g. for infrastructure, SEZ units). |
| Comply with ECB Master Directions (track record, end-use restriction). |
| Assist in LRN registration, hedging, reporting to RBI via AD Bank. |
8. Loan Against Receivables (TReDS Platform)
Approved under RBI guidelines to ease MSME cash flows:
| TReDS Platform | Consultant Role |
|---|---|
| Receivables Exchange of India Ltd (RXIL) M1xchange Invoicemart | Onboard MSME clients, help invoice uploading, discount bidding. |
Documentation & Compliance Under RBI Norms:
As a consultancy, ensure:
- KYC norms as per RBI Master Direction
- Udyam registration for MSME clients
- GST returns, audited financials
- CMA data preparation
- Credit rating assistance (optional but favourable)
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