Bank Finances

Project finance is the long term financing of industrial projects, infrastructural projects, asset refinancing projects, developmental projects, etc. Project finance helps finance new investment by structuring the financing around project’s own operating cash flow, estimated and projected future financials and assets, without additional sponsor guarantees. Thus, the technique is able to alleviate investment risk and raise finance at a relatively low cost, which benefit the investor and sponsor alike.

There are mainly two types of Credit facilities/Limit which are availed by the borrower. They are Fund Based limit and Non Fund Based limit.

Cash Credit Facility/ Overdraft Facility
A Working Capital facility is one that is required for maintaining smooth functioning of day to day business activities. It is a limit availed from bank which is utilized for purchasing of Raw material, payment to creditors, maintaining inventory, paying salary and rents, etc.
The amount of limit is based on the volume of Inventory, outstanding of Debtors and Creditors.
The limits of Cash Credit facility has fund based and non-fund based limits which can be availed from the Bank. They are as follows:

Pre-Shipment Credit in Foreign Currency (PCFC)
PCFC is a form of Credit provided by a bank to an exporter for the purpose of financing the purchase, processing, manufacturing or packaging of goods before shipment.

Bank Guarantee
A Bank Guarantee is a type of financial backstop offered by a lending institution. The bank guarantee is when a lending institution promises to cover a loss if a borrower defaults on a loan.

Letter of Credit (LC)
A letter of Credit, also known as documentary credit or banker’s commercial credit or letter of undertaking, is a payment mechanism used in international trade to provide an economic guarantee from a creditworthy bank to an exporter of goods.

ILC/FLC
Inland Letter of Credit is issued to meet out the credit requirement for domestic trade. This is given to seller of the goods on behalf of the buyer by the bank where the buyer deals.
Foreign letter of credit is issued to meet out the credit requirement for international trade. This is offered to provide the assurance about the buyer’s creditworthiness to mitigate the delay in payment to the seller.

Term loan is the fund based limit provided by banker to the borrower for the purchase of Plant and machinery, Construction of Factory Building, asset refinancing, etc. An average of 3/4th of the total project cost is availed by the borrower as Term Loan against the margin of 1/4th of the project cost. There are various types of term Loan. They are as follows:

Lease Rental Discounting:
Lease Rental Discounting (LRD) is a Term Loan offered against income-producing commercial assets/property. The LRD Loan works on the premise that your leased property derives fixed rent, which you can use as a 'Collateral' to generate funds, instantly

Construction Finance:
A construction loan, also known as a self-build loan, is a short-term loan used to finance the construction of a home or other real estate project. Once long-term financing is secured, the contractor or home buyer must take out a construction loan to cover the building cost.

Loan against Property, Business Loan and Housing Loan:
A loan against property (LAP) is a secured loan that is sanctioned against the asset pledged as collateral. This asset can either be an owned land, a house, or any other commercial premises. The asset remains as collateral with the lender until the entire loan against property amount is repaid.

In the financial world, a consortium refers to several lending institutions that group together to jointly finance a single borrower. These multiple banking arrangements are very similar to a loan syndication, although there are structural and operational differences between the two.