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How to make MSME credit through supply chain finance

  • 30-Mar-2022
How to make MSME credit through supply chain finance

Micro, small, medium and enterprises play a significant role in making jobs for the corporation, but they must try to opt for easy acquisition to finance when required. In our country, accounting for MSME is an important share of GDP contribution and employment. Banks face difficulty in the assessment of credit risk owing to the shortfall in the availability of repayment trends data, structured financial statements, historical cash flow statements, etc. 

Supply Chain Finance is a loan where the sellers of MSME can obtain early payment opposed to the invoices of the extensive user. 

Benefits of Supply Chain Finance 

For buyers: - 

Buyers might be aimed at increasing their DPO (Days Increasing Outstanding). However, suppliers wish to get paid as soon as possible, therefore decreasing their DSO (Days Sales Outstanding). Because of the long credit period, the buyer can: -  

  • Enhance the position of Working Capital
  • Has the benefit of negotiation
  • Maintain supply chain
  • Upgrade credit rating
  • Expand liquidity
  • Initiate the effects of credit cash
  • Support for the growth of the business
  • Build up the relationship of the suppliers
  • It is the easiest way to procure the finance of working capital.

For suppliers: - 

Suppliers can also have the advantage of a conclusion of supply chain finance from the improvement of Day Sales Outstanding to acquire financing for a low cost. 

  • Decrease existing bills.
  • Reduce the cost of financing.
  • Has the benefits of Working Capital.
  • Assist in better financing rates.
  • Acquire an easy-to-use and understand platform.
  • Make accessible settlement.

Role of Supply Chain Finance for MSME 

MSME plays a crucial role in giving the growth and development of appearing economies like India. In India, more than 80% of MSME takes place over the range of bank credit and acquire funding from informal or private sources at an excessive cost. 

There are various limits of challenges by banks from expanding funding to small businesses. 

  • High risk of non-payment.
  • Shortage of consistent financial reports.
  • Hassle in the measuring of risk properly.
  • Need for deficiency on the data of business performance.

The interest rate for Supply Chain Finance 

Rate of interest @9.00% onwards 
Loan amount  Up to Rs. 2 Crores 
Processing fee 1.00% 

Interest rate and processing fees by Banks in India 

Bank name Interest rate  Processing fee 
Axis Bank Ltd. 8.00% 1% 
State Bank of India 7.80% 1% 
IndusInd Bank 10.00% 1% 
ICICI Bank Ltd. 9.00% 1% 
Bank of Baroda 9.00% 1% 
Kredx  16.00% 1% 
SBI global factors limited 11.00% 1% 
Tata Capital Financial Services Limited 12.00% 1% 
Lending Kart Finance Limited 18.00% 1% 

Common types of Supply Chain Finance 

  • Confirmation, safekeeping, and LC checking
  • Import and Export bills
  • Letter of Credit
  • Shipping guarantees
  • Performance bonds
  • Export LC advising
  • Pre-shipment export shipment
  • Export and Import financing

Eligibility criteria for Supply Chain Finance 

Eligibility criteria for SCF depend on many factors such as business turnover, age of an individual, repayment history, creditworthiness, etc.  

  • The age criteria of the borrower are between 25 to 64 years of age.
  • Business continuity for a minimum of 3 years.
  • Public and Private Companies, Proprietary concerns, Private Trusts, Individuals, Limited Liability Partnerships, Partnership firms.
  • The borrower can get up to Rs. 50 lakhs as a loan amount.

Documents required for SCF 

  • 2 Passport sized photographs
  • Aadhar card and Passport
  • Copy of PAN Card
  • Income Tax Return if the computation of income (if filed) for 3 years.
  • Permanent address proof and also needed if rented.
  • Sanction letter and loan scheduled.
  • A Cheque for the processing fee.
  • Bank statement of salary account for 1 year.
  • Complete property documents with ATS + MAP and Chain.
  • 3 months' salary slips and appointment letter.

Earlier, Supply Chain Finance was insufficient for vast organizations due to huge board and running costs. But now with advanced technology SCF has been expanding as a cure for micro, small, medium, and enterprises and banks similar in taking down the cost process. 

Therefore, knowing the facts of financeseva allows you to compare the best deals for Supply Chain Finance. 

Also read: - What is MSME? Its Definition, Role and Importance

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