Corporate Banking

 

1. What is an overdraft?

It is a short term working capital financing facility whose purpose is to address the timing differences between the time a client needs to pay for goods purchased and the time the client receives cash from his customers after selling the goods i.e. at the end of the client’s cash conversion cycle. For example if a client’s terms of purchase by his supplier is cash on delivery and the client, due to competition or other factors, needs to give credit to his customers of say 7 days, then the timing difference of 7 days would require an overdraft to bridge the gap. Overdraft facilities are usually granted for short tenors of up to one year renewal upon satisfactory performance at the end of the period.

2. What security is acceptable for an overdraft facility?

The type and quantum of security depends from client to client based on a number of factors like strength of the client’s financials, past track record in terms of servicing bank facilities, account conduct among other factors but generally speaking tangible security is required. Tangible securities include legal charges over land & buildings, quoted stocks & shares, cash, Bank guarantees among other easily realizable securities. In addition other securities like debenture may be required depending on the circumstances.

3. What is a term loan facility?

It is a financing facility whose purpose is to address the medium to long term financing needs of clients. Examples include the purchase of valuable assets like land, buildings, motor vehicles etc. Since the return on the assets purchased is usually realized in the medium to long term, a term facility is the most viable solution as the loan repayments resonate well with client’s cash flows over the medium to the long term.

4. What security is acceptable for a term facility?

A legal charge / lien over the asset(s) to be purchased in addition to directors / shareholder guarantees. In addition other securities like debenture will be a requirement depending on the individual client circumstances.