Channel Financing - Meaning | Advantages | Eligibility Criteria | Documents Required
✓Minimal Documentation ✓Flexible Repayment ✓Collateral Free Loan | Apply for Business Loan Now!
Channel financing is a type of working capital loan offered by banks and NBFCs. Designed to help companies manage their supply chain more efficiently, these loans are suitable for distributors, dealers, and buyers who purchase goods or services from a corporate entity. When a manufacturer company sells products to several dealers, the dealers might not always have money to pay the company immediately. With the help of channel financing, banks and NBFCs pay the company on behalf of the dealers or distributors. The dealers or distributors can later repay the bank or NBFCs.
As a dealer or distributor, you can get loans of up to ₹50 Lakhs. It allows flexible repayment tenures ranging from 12 to 96 months, with interest rates starting from 14% p.a.
Features and Benefits of Channel Finance
Channel financing carries several notable benefits that include the following:
Quick Loan Approval
Channel financing involves an easy loan application process. If the documents are clear, the funding gets cleared in just as few as 3 days.
High-value Unsecured Working Capital
Eligible profiles can get collateral-free loans up to ₹50 Lakhs through channel financing
Convenient Loan Account Management
The loan account can be operated and managed conveniently through any device from anywhere
Flexible Repayment
Flexible repayment tenure ensures a smooth payment process. The loan can be repaid within a short-term or long-term depending upon the business revenue. One can choose from 12 months up to 96 months.
Channel financing is offered to eligible micro, small, and medium enterprises (MSMEs). The business owner should:
Minimum annual income, as per ITR, must be ₹1.5 Lakhs
Own either a business property or a residential property
Have a vintage of at least 3 years
The business owner should offer the following documents when applying for Channel Financing:
Certificate of business existence
ITR for the last year
House and business address proof
PAN card
Aadhaar card
Profit and loss statements for the past 3 years, etc.
Let’s take a look at a few of the positive effects that it has had on the supply chain:
Keeps the Supply Chain Active
Businesses can ensure that there are no disruptions in their supply chain due to lack of funds. They can also quickly scale up their supply chain to meet a sudden spike in demand.
Helps Manage the Inventory Better
Having adequate inventory is an important facet for businesses and they can get the funds needed to shore up their inventories in accordance with the market demand without any hassle.
Enhances the Relationship Between the Business and Its Customers
The customers might tend to delay payments until the due date, while businesses want to quickly get their invoices paid, leading to a friction between the two. Channel finance helps to reduce this friction through seamless transactions, ensuring a healthy relationship between both.
Instant Access to Funds
The ability to get instant access to cash streamlines the supply chain of a business by increasing liquidity. Also, thanks to low channel financing interest rates, the burden of debt is also very low.
Select a bank or NBFC that offers channel financing
Most lenders provide an online application process. Apply through the lender’s official website.
Input your 10-digit mobile number and receive an OTP for verification
Fill the application form with your personal details, including full name, PAN, date of birth, and PIN code
Specify the loan amount you need and select a repayment tenure
Submit necessary documentation for KYC. Wait for verification.
Once approved, the loan amount will be transferred to your bank account
Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.
FAQs on Channel Finance
What is the interest rate on channel financing?
The interest rate for channel financing is competitive, starting as low as 14% per annum, depending on the loan tenure. A strong credit score can improve your eligibility and help secure more attractive interest rates.
How does channel financing work?
Channel financing is an innovative form of funding that enables businesses to get working capital from a third party (a lender in the form of a bank or NBFC). They provide the businesses operating within a supply chain. The supplier sells its invoices or receivables to the financing provider at a discount, and the distributor can make the payment at a later date, often agreed upon by the lender.
What is the objective of channel financing?
The primary objective of the channel finance facility is to provide businesses with funds for their working capital requirements. Through this credit facility, businesses can ensure that their operations go on smoothly without any interruptions.
What is the borrowing limit to get supply chain finance?
When it comes to supply chain finance, the maximum limit that you can borrow depends on various factors like the requirements of the business, how long the business has been in existence, its financial situation, and creditworthiness, among others.
How is channel finance different from traditional loans?
Channel finance is different from traditional loans as they are typically extended to individual businesses based on their creditworthiness, while channel finance is based on the strength of the entire supply chain and the transactions within it.
