Funding Types

Account Payable

This refers to the amount that a business owes to its suppliers or vendors for goods or services received. In India, as elsewhere, managing accounts payable efficiently is crucial for maintaining good business relationships and optimizing cash flow. For example, a restaurant in Mumbai might have accounts payable for purchases made from food suppliers, which it needs to pay within agreed payment terms.

Account Receivable

This is the amount that is owed to a business for goods or services it has provided. In India, effective management of accounts receivable is important for ensuring steady cash flow. For instance, a software services company in Hyderabad might have accounts receivable from its clients who have used its services but not yet paid their invoices.

Collateral backed loans

Collateral Backed Loans: These are loans that are secured by an asset or collateral. The collateral could be property, vehicles, gold, or other valuable assets. If the borrower fails to repay the loan, the lender has the right to seize the collateral to recover the loan amount. For example, in India, a common type of collateral-backed loan is a home loan where the property being purchased serves as the collateral.

Equity based financing

Equity Based Financing: This is a method of raising funds by selling a portion of the business’s equity. In India, this is commonly used by startups and growing businesses that may not have significant assets or cash flow to secure loans. For example, a tech startup in Bangalore might offer equity to venture capitalists in exchange for capital to grow its business.

Funding for buying assets

Funding for Buying Business Assets: In India, businesses can secure loans or other forms of financing to purchase assets such as machinery, equipment, or property. These assets can then be used to generate income for the business. For example, a manufacturing company in Gujarat might secure a loan to purchase new machinery, which it can then use to increase its production capacity.

Invoice Discounting or Factoring

Invoice Factoring: This is a financial transaction where a business sells its accounts receivable (invoices) to a third party (called a factor) at a discount. This is often used by businesses to meet immediate cash flow needs. For instance, a manufacturing company in India might use invoice factoring to receive immediate payment for its invoices, rather than waiting for the usual 30-90 day payment term.

Overdraft Facility

This is a credit line that is granted based on the company’s current account. Interest is charged only on the amount overdrawn

Working Capital

Working Capital: This is the funds a business uses for its day-to-day operations. In India, businesses can increase their working capital through methods such as short-term loans, reducing inventory, or improving accounts receivable collection. For instance, a retail business in Delhi might take out a short-term loan to increase its working capital, allowing it to purchase more inventory for the upcoming festive season.