Indian economy is growing at an exponential pace, and small and medium enterprises are central to sustaining this growth. There are more than 42.50 million SMEs spread all around the country, employing about 106 million people and holding an asset or Rs. 1,471,912.94 Crore.
However, despite their tremendous contribution to the nation’s economy, SMEs are still plagued by a consistent deficit of capital. It is especially evident in the manufacturing sector. SMEs that produce various goods often face difficulty paying vendors for raw material and supplies.
Financial institutions offer vendor financing scheme that acts as a source of funding to overcome this issue. It helps a business maintain smooth operations and overcome a shortage of funds that might hinder the production process.
Vendor financing is a short-term, unsecured financing option that provides an advance to businesses to pay off various merchants. Manufacturing businesses in India often have to pay a premium price for exported raw materials, supply chains across the country, and several ancillary industries offering services to a particular business. These can strain an already cash-strapped enterprise and hamper its production.
Vendor finance helps such organizations to pay for the essentials and keep production going. It is a great way to sustain and expand your manufacturing business.
What are the benefits of vendor financing?
A vendor financing scheme comes with various features and benefits that allow your business to run without hindrance. It offers a large sum of up to Rs. 30 Lakh as an advance, which is sufficient to pay for the even highest quality raw materials. Also, the entire process is kept hassle-free and streamlined with instant processing and quick disbursal of the funds.
The borrower can also repay the due across numerous options of repayment tenors. Usually, it ranges from 12 to 60 months. Financial institutions also provide competitive interest rates on vendor finance. Flexible tenor and attractive rate of interest allow you to repay the loan with ease and without burdening your business’ fund. It can help you avoid burnout while running your small or medium scale business.
Companies like Bajaj Finserv also provide Flexi Loan facility with their vendor finance, where you get access to a pre-approved loan limit to borrow funds from. You can borrow the exact amount of funds you require and repay it according to your convenience. The interest is calculated only on the borrowed amount instead of the principal, which can significantly reduce the amount you have to pay as EMIs.
How vendor financing helps you sustain and grow your business’ production?
Vendor financing can facilitate your business to both expand and sustain its reach. You can utilize the funds in various ways. Furthermore, there is no end-user restriction to such advances; you can use the loan amount at your discretion. Let’s take a look.
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Acquire better quality raw material – You can purchase higher quality raw materials with a vendor financing scheme. It provides an alternative funding option without straining your budget.
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Avoid a shortage of funds – Businesses often experience times when the revenue stream decreases significantly. You can opt for vendor financing during such times instead of reducing the organization’s production capacity in accordance with lower revenues.
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Alternative financing to repay multiple dues – Vendor financing is an ideal option to pay for the necessary resources and services. It provides funds for the bare necessity and prevents the production line from idling.
A business loan in the form of vendor finance can be ideal to overcome a significant financial deficit faced by your manufacturing business.
Vendor financing allows you to acquire essential goods for your business and keep its production line running even during times of low revenue. It frees up your organizations working capital and helps you sustain a steady stream of returns even when the demand for products is significantly less.