Financial Literacy Module for MSMEs

Working capital represent those funds which are required to manage day-to-day business operations. These funds usually gets invested in building current assets such as:

Working Capital is also known as revolving or circulating capital or short-term capital or Asset conversion cycle.

Purchase of raw materials/goods to manufacture or trade.

Why does a Business need Funds?

What is Working Capital?

To make operational payments like salary, rent, electricity expenses etc.

Liquidity is blocked as sale of goods is done on credit terms to buyers.

Purchase of Capital Assets such as Plant & Machinery, Building, Office etc.

Debtors and Inventories /StocksLess short term liabilities like operational expenses, creditors, etc.

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Sales order is received by an entity.1

Entity purchases raw material, goods, incurs expenses for services, overheads.

2Once the production/purchase cycle is complete, finished goods/services are delivered to the customer.

3Goods may be sold on cash or credit. Credit receivables are realized based on the credit period offered. There is a time lag between sale & receipt of funds.

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Funds to be deployed in advance for next production cycle.5₹

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Working Capital Cycle

Major Types of Working Capital Facilities

Running Account facility.Drawing power determined each month based on stock and/or debtors and creditors statement declared by the borrower.End use can be for payments to creditors or for operational expenses.Sale proceeds should be credited in this account.

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End use can be for payments to creditors or for operational expenses. Sale proceeds should be credited in this account.Monthly submission of debtors/stock statement not required.Drawing Power mechanism is not applicable here.

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To be repaid on demand.It is repayable at a fixed schedule at a fixed time.Repayment can be structured as per the purpose of borrowing.To meet short term working capital requirement of the borrower.

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An overdraft facility where sanctioned limit gets reduced at a pre-defined frequency by a fixed amount as per the tenor set.Other features as per overdraft facility

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Trade Finance Facilities Under Bill discounting, bank takes the bill drawn by borrower on their (borrower's) customer and lends them immediately deducting some amount as margin.The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount.If the bill is delayed, the borrower or their customer pays the Bank a pre-determined interest depending upon the terms of transaction.

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Credit Limit to enable exporters to procure raw materials, process, manufacture, pack, transport and store goods meant for export.It is basis an underlying export order.

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Credit Limit to equip the exporter with liquidity to offer credit terms and gain competitive edge in global markets.Shipping / other documents evidencing exports must be present.Lead time for transit of goods is crucial to ascertain the credit limit.

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Non-Fund based Facilities

Letter of Credit facilitates settlement of trade payments and are used for both local and international trade.Banker’s Undertaking on behalf of a borrower to pay to a third party against compliance of stipulated conditions. On submission of documents as per terms, the LC open-ing Bank is duly bound to make the payment.It is the responsibility of the borrower to make the pay-ment of the LC on the due date to the issuing bank, fail-ing which it leads to devolvement of LC.Various types of LC: Sight LC, Usance LC, Inland LC, Foreign LC

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Bank guarantee is issued by a bank, undertaking the liability of an applicant. In case of non-fulfillment of the underlying conditions by the applicant, the Bank is liable to compensate the principal.Major types of Bank Guarantee : Financial BG and Performance BG.

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Supplier’s Credit is for financing imports into India.It is extended by the overseas supplier under LC.RA Financing is Reimbursement Financing.It is a trade loan provided by an overseas bank (reimbursing bank).Granted against unconditional and irrevocable undertaking by issuing bank to pay on maturity.Can be availed basis underlying LC.

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Funding import payments by drawing loan in foreign currency.Can be used for various types of import transactions such as Direct Imports, Bills for Collection, Bills under LC. Working Capital Demand Loan can also be availed in foreign currency.

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Import Finance Facilities

YES Bank’s MSME Customized Programs

The limit offered is up to INR 1.5 Crs.

Charge on current assets is not mandatory

Parameterized program with assessment basis bank account conduct of the customers.

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Financial statements not required.

Charge on Current Assets is flexible.

Flexible Collateral Cover starting @85% of limit.

Limit from INR 0.25 cr. – 3 crs. basis GST & bank statements.

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Limit Amount up to INR 1.5 Crs.

Limit by way of OD (yearly renewal)/DLOD up to 5 yrs.

Charge on Current Assets (Stock/Debtors) not required.

Quick & Easy Finance Option basis only key financial analysis & bank statement conduct.

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Limit by way of OD (yearly renewal)/DLOD up to 5 yrs.

Financials & Bank Statements not Mandatory.

Charge on Current Assets (Stock/Debtors) not required.

GST based Working Capital Limit up to INR 1 Cr.

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Government Initiatives

Loan up to INR 2 Cr for MSE units. Eligible entities are New & Existing Micro & Small Enterprises engaged in manufacturing or service activity and retail trade. Loan is secured under guarantee by CGTMSE by charging annual guarantee fees.For entire Scheme details on CGTMSE, please click on the link : https://www.cgtmse.in/About_us.aspx

Loan amount that can be availed is 10 lakhs to 1 cr.Specially for financing SC/ST and/or woman entrepreneursEnterprise can be in to manufacturing, service or trading It should be a new enterprises and should be working on green field project only.For entire Scheme details on Standup India, please click on the link : https://www.standupmitra.in/

It is known as Pradhan Mantri Mudra Yojana (PMMY).Collateral free loans up to 10 lakhs for non-corporate, non-farm small/micro enterprises.Applicant can approach any Commercial bank, Regional Rural banks, Small finance institutions, Micro finance Institutions or NBFCs or can apply online through www.udyamimitra.inFor detailed guidelines please refer: https://www.mudra.org.in/

PMEGP

Known as Prime Minister's Employment Generation Programme (PMEGP).It is a credit linked subsidy programme administered by the Ministry of MSMEs, Government of India.Khadi & Village Industries Commission (KVIC), is the nodal agency at national level for implementation of the schemeScheme offers collateral free loans up to 25 LakhsFor detailed guidelines, please refer: www.kviconline.gov.in/pmegpeportal/pmeg

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Government Initiatives

It is known as Credit linked Capital Subsidy Scheme.The Scheme facilitates technology up-gradation for MSEs.Provides upfront capital subsidy of 15% on institutional finance of up to Rs.1 cr. availed by MSEs.For detailed guidelines please click on the link below: www.dcmsme.gov.in/schemes/credit_link_scheme.htm

An online marketplace for business related loans introduced by the Govt. of India.MSMEs to get in-principle loan approval in 59 mins.Fast and easy credit access to MSMEs for their business requirements

Digital Portal for MSEs to apply for collateral free loans.Applicants can select their preferred banks/NBFCs basis Provisional Guarantee Certificate provided by the portal.YES Bank is on board CGTMSE’s UDAAN portal.

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�����������������https://yesmsmeonline.yesbank.in/loans/

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www.yesbank.in

Online Loan Application with

MSME led Digital Initiatives

Group payments on click without file uploads.

Single Click GST payments.

Flexible Maker/Checker rights.

User friendly Salary Management Module.

Submission of various transaction requests, stock statements, etc.

Unified view of liability, asset and trade relationship.

User-friendly and interactive option for MSMEs.

On-call instant assistance by bank staff, if required.

Instant FD creation through chatbot up to INR 2 crs. for sole prop. and individuals.

Online submission of transaction requests and automated processing.

Real time notifications.

Secured Web based Platform for Trade Transactions.

Instant Eligibility for Working Capital up to 1.5 crs.

Paperless approval process basis bank statements/GST.

Platform to apply for MSME loans anytime from anywhere.

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Industry Focused Platforms

Exclusive marketplace for association members to connect & explore business opportunities.Easy Knowledge Sharing amongst association members.Marketing platform for members to promote their business.For more details visit,www.yesbank.in/media/press-releases/bizconnect_for_msme_associations

Plug & Play Digital Platform for Industry

Initiative to Boost Homegrown Businesses/Start-ups.

Supporting businesses to revive in the Unlock phase and focus on sustainable growth.

For further details, visit www.yesforlocal.com/

Inspired from Govt.’s “Go Vocal for Local.

Basic Guidelines for MSMEs

��������������� �For all MSME units, it is now mandatory to have Udyam Registration. The process is online, user-friendly and can be completed with self declaration.

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KYC documents of the entity and all promoters.GST registration and Udyam Registration.Financial Statements (as applicable) with ITR of last 2 years. Individual ITR of all promoters.Bank statements and GST returns of the Entity (as applicable)Details of existing loans, if any.

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Applicant should get the Acknowledgement of Loan applications.Final decision of sanction or rejection should be communicated to the applicant.Collateral - Banks are mandated not to seek collateral security for loans up to Rs.10 lakhs to MSE sector.

Credit Understanding & Discipline

Always understand the type of credit facilities available in detail and avail the apt facility basis your end use of funds. Mismatch in the end use and type of credit facility availed can hamper the working capital cycle and smooth functioning of business.

��������������������������������������Please take clarity on every aspect of the credit facility you intend to avail to avoid any adverse impact at a later stage. It is important to read all the terms and conditions of the facility as provided in the relevant documents and understand its impact on your business financially and operationally before you sign and accept any document.

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Another important aspect of financial discipline is following prudent and timely adherence to all statutory compliances such as filing requisite returns, payment of statutory dues, maintaining records of all financial and statutory documents etc. Non-adherence to these basic discipline aspects is treated as violation of regulatory norms and lead to levy of heavy penalties by concerned authorities. Similarly, all sanctioned terms of the credit facilities should be complied within stipulated timelines i.e. routing business transactions through primary banker, submission of stock statements, annual audited financials, insurance coverage of assets/collateral securities, additional documents as per specific sanctioned terms, etc. The aforesaid discipline plays a vital role to create a strong goodwill and maintain a healthy relationship with the banks, auditors and all concerned stakeholders.

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Credit History or repayment track record plays a crucial role in assessment of credit facilities by banks/financial institutions. Credit Bureau reports from institutions like CIBIL, Experian etc. are generally referred by lenders to check the credit history or repayment track record of a borrower. Hence maintaining credit discipline i.e. repayment of EMI dues, monthly interest servicing, etc. should be done timely on respective due dates, avoid overdrawn limit scenarios, ensure timely payment of credit card bills and consumer loan dues. Also, it is advised to avoid making random and frequent enquiries for loans unless you intend to borrow during that timeframe. Any irregularities or adverse conduct in the said scenarios impacts your bureau score negatively and your application can be rejected.

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YES BANK Tower, ONE International Center, 15th Floor, Senapati Bapat Marg, Elphinstone (W), Mumbai 400 013