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Pre-shipment Credit in Rupee: Exporters can avail credit in rupee before shipment of goods.
Pre-shipment Credit in Foreign Currency (PCFC): Exporters can also avail credit in foreign currency before shipment of goods.
For post-shipment finance, some of the options available to exporters include:
Export Bills Purchased/Discounted: Exporters can get their export bills purchased or discounted on a Documents against Acceptance (DA) or Documents against Payment (DP) basis.
Export Bills Negotiated: Exporters can get their export bills negotiated under a Letter of Credit (LC).
Advance against Bills Sent on Collection Basis: Exporters can avail advance against bills sent on collection basis.
Post-Shipment Credit in Rupee: Exporters can avail credit in rupee after shipment of goods.
Post-Shipment Credit in Foreign Currency: Exporters can also avail credit in foreign currency after shipment of goods.
It is important to note that if pre-shipment credit has been availed in foreign currency, then post-shipment credit also has to be availed in foreign currency. Pre and post shipment finance in foreign currency gives exporters an advantage to avail loans at a much cheaper cost linked to LIBOR/EURIBOR.
It is also important to understand various export incentives available for exporters to evaluate before availing funding options -
Buyer's credit is a financing option available to importers in India. It is a short term working capital trade credit loan extended to an importer by an overseas lender such as a bank or financial institution. This facility enables importers to procure loans from overseas financial institutions at lowcost borrowing rates, which are coupled with SOFR rates. It is important for importers to consult with financial experts and adhere to relevant regulations when considering raising debt through buyer's credit. The calculator helps you evaluate the arbitrage available between rupee and foreign currency funding options.
Supplier's credit is a financing option available to importers in India. It is a structure of financing import into India where overseas suppliers or financial institutions outside India provide financing to the importer on LIBOR-linked rates against a usance letter of credit (LC). This facility enables importers to procure loans from overseas financial institutions at lowcost borrowing rates, which are coupled with LIBOR rates⁵. It is important for importers to consult with financial experts and adhere to relevant regulations when considering raising debt through supplier's credit. The calculator helps you evaluate the arbitrage available between rupee and foreign currency funding options.
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A domestic company with no export or import operations may still have the option to raise debt in foreign currency. One such option is through the issuance of Foreign Currency Non Resident (FCNR (B)) route. FCNR (B) is disbursed in a foreign currency and carry a fixed interest rate, which is usually lower than the rate of interest of domestic currency. However, it is important to note that there are regulations and guidelines in place for raising debt in foreign currency, such as the Reserve Bank of India's Master Directions on External Commercial Borrowings, Trade Credits and Structured Obligations. It is advisable for companies to consult with financial experts and adhere to the relevant regulations when considering raising debt in foreign currency.
Working capital loans
Capital goods imports
Buyer’s & Supplier’s Credit on Non-fund based limits provided by banks
When evaluating financing options for a Greenfield project, it is important to consider the cost of borrowing in local or foreign currency. Borrowing in foreign currency may offer lower interest rates, but it also exposes the company to exchange rate risk. On the other hand, borrowing in local currency eliminates exchange rate risk, but may come with higher interest rates.
Another factor to consider is the strategy for purchasing machinery. Localized purchases may offer cost savings through reduced transportation and import costs, while importing machinery may provide access to more advanced technology or better financing terms. Learn about the various funding options available for capital goods purchase.
Ultimately, the optimal funding strategy will depend on a careful analysis of the costs and benefits of each option, taking into account the specific needs and circumstances of the project. It is important to weigh the potential cost savings against the risks and uncertainties associated with each option.
Pre-Sanction Stage advisory -Myforexeye assist companies arrive at critical asks from financial institutions which could potentially reduce the cost of borrowing. It is important to deep dive into specific cost items to arrive at an optimal funding route for the organization.
Post-Sanction implementation - Once the project is sanctioned it is important to evaluate covenants in the sanction letter and breakup of funding between fund based and non-fund based limits. In case sanction allows borrowing in foreign currency then Myforexeye will assist in proper drawdown and formulating risk management strategies to mitigate interest rate and currency risk.
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