✔️How does Channel Financing work?

Channel Financing is an innovative form of funding that enables businesses to avail working capital. A supplier must raise an invoice as part of this process, and the dealer should approve it. Once the same is verified and approved, the lender disburses the funds into the supplier’s account.

Channel Financing

Q: ✔️Who can avail supply chain finance?

Channel finance can be availed by sole proprietorships, partnership firms, limited liability partnerships, public and private limited companies.

Channel Financing - Meaning | Advantages | Eligibility Criteria | Documents Required

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What is Channel Financing

Channel financing is a type of credit facility by financial institutions that provides working capital funding to their finance partners, supply chain stakeholders, distributors, dealers, etc. Lenders typically offer this type of financing in the form of bill discounting and cash credit. Thus, channel financing offers extended and convenient repayment terms for business owners who can effectively ensure they face lesser working capital crunches.

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 avail of a loan of up to ₹50 Lakhs through channel financing without offering any collateral.
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 between 12 months, 18 months, 24 months, or 36 months.

What are the Effects of Channel Finance on Supply Chain

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, by being able to convert their invoices into cash using channel finance, can ensure that there are no disruptions in their supply chain due to lack of funds. That’s not all. Businesses can also quickly scale up their supply chain to meet a sudden spike in demand.

Helps Manage the Inventory Better

Possessing adequate inventory is one of the most important facets of a business. Thanks to channel finance, businesses 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 of a business generally tend to delay making payments until the due date. On the other hand, businesses are looking to quickly get their invoices paid out to them. Such an environment can lead to friction between these two entities. Channel finance helps to reduce this friction through seamless payments and transactions and ensures that there’s a healthy relationship between both entities.

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.

Eligibility Criteria for Channel Financing

Channel financing is offered to eligible micro, small, and medium enterprises (MSMEs). The business owner should:

Have a turnover of more than ₹7.5 Lakhs
Own either a business property or a residential property
Have a vintage of at least 3 years
Possess ITR of a minimum of ₹1.5 Lakhs

Documents Required for Channel Financing

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.

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Channel financing is a credit facility that is meant for corporates and stakeholders. It is a working capital loan that is available in the form of bill discounting or cash credit.

The interest rate levied on channel financing is competitive and starts at as low as 12% depending on the loan tenure.

Channel financing is an innovative form of funding that enables businesses to avail of 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.

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.

Channel finance can be availed of by sole proprietorships, partnership firms, limited liability partnerships, and public and private limited companies.

When it comes to channel 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.

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.