Credit facilities are provided by the banks for working capital needs as well as to facilitate production schedules.
There is no ceiling on the amount of finance under the bank’s need-based approach. These advances are given against pledge/hypothecation of stocks stored or purchases, bills drawn for finished products sold, on the specific terms.
Under the Working Capital Facilities the following schemes are available:
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ADVERTISEMENTS:
(1) Lock and Key Pledge of Stocks:
A part of materials not immediately required is placed in a go down under the ‘Lock and Key Pledge Scheme’, under this scheme.
(2) Factory/Mundy Type/Hypothecation advances:
ADVERTISEMENTS:
Under this scheme, factory/mundy type pledge or hypothecation advances are granted, and the raw materials finished products are kept in the factory itself and statements of stocks are given to the bank from time to time.
The difficulties in handling of materials under Lock and Key scheme are avoided in this scheme.
(3) Advances against stocks-in-process:
In cases where the production process takes a few days, the bank advances loans against the stocks which are in process.
ADVERTISEMENTS:
(4) Advances against bills:
Banks grant credit facilities against bill which are payable on expiry of the credit period given to the parties to assist the units to continue their manufacturing activities smoothly.
(5) Clean Advances:
In order to assist the units to meet shortfalls or deficits in working capital requirements and to meet contingent needs, banks grant clean advances also.
(6) Packing Credit:
Exporters are given advance on concessional rate of interest to enable them to execute firm export orders with or without the letters of credit.
(7) Additional Facilities:
Some other facilities provided by the banks are:
(a) Advance payment to the suppliers of raw materials.
(b) Trust receipt facilities for release of goods temporarily for genuine needs without making payment.
(c) Opening of import and inland letters of credit.
(d) Issue of guarantees.
(e) Drawings against documents of title to goods pending receipt of the goods.