Vendor Finance – Definition, Meaning, Types & Benefits

Vendor finance is offered to vendors and traders to assist them in fulfilling the cost of products, inventory, and property. It is a short-term loan facility rendered by financial platforms like Bajaj Markets and eases the financial pressure on vendors. Also known as trade credit, the facility can be availed by any individual who needs funding to purchase products or equipment to support a business. Vendor finance can be used at any stage of the business, i.e. during manufacturing or post-manufacturing. The financial offering can be a good option when a Business Loan may not be the best choice.

• Credit facility offered to vendors

• Great short-term working capital

• Credit disbursed depending upon the business requirement

• Quick capital sanction

• Minimal documentation

• Hassle-free lending process

• Dedicated guidance through the lending process

There are two types of vendor financing options that can be availed:

• Debt Financing: The borrower will pay interest on the borrowed sum to the vendor.

• Equity Financing: The vendor will lend the stock and inventory in return for the borrower’s company shares.

A working capital loan, unlike a traditional Business Loan, is majorly driven by a favourable relationship between the lender and the customer. Vendor trade loans involve a very high risk of default, and this is one reason why the interest rate charged against this type of financing is relatively higher. Here is an illustration that will help you understand the process better:

Let us assume that Raj wants to purchase business inventory from Rakesh. The value of the inventory is ₹10 Lakhs. However, Raj has only ₹4 Lakhs to offer and must borrow the remaining funds. In this case, Rakesh will enter a financing arrangement with Raj and a financial institution willing to lend the remaining ₹6 Lakhs. The financial institution will lend ₹6 Lakhs and charge 10% interest on the borrowed sum. The total sum must be repaid within the next 12 months. Also, Raj must surrender the inventory against the borrowed credit in case of default.

The opportunity of vendor financing opens up immense possibilities for your business through the conveniently available capital. You must pick a good Business Loan that serves your needs. A Business Loan works extremely well in establishing your entrepreneurial endeavours, and it helps you build a strong foundation within the business market and reach greater heights. Evaluate your prospects of getting a Business Loan at Bajaj Markets for the best deals. You can learn more about Business Loan eligibility at Bajaj Markets.