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“India Corporate Finance”
– Blog |
Is Buyers’ Credit appropriate to fund expansion? |
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From
our blog: TUESDAY, NOVEMBER 27, 2012 As a corporate finance
solution provider, every day I meet customers who ask me questions.
Some of these appear simplistic but I always found them to make me
introspect deeply and therefore always enriching. A couple of days I met
a CFO of a company which is planning to set-up a new expansion unit.
The discussions was on funding the expansion, prevailing high interest
rate and naturally minimizing borrowing costs. I suggested foreign
currency loan. The CFO immediately shot back, "Buyers' Credit?". I said
"it is for trade finance, and short term in nature". He said, "it can
be availed for one year and rolled-over for further periods". I was surprised by the alacrity
of the Indian mind and how it tries to find innovative solutions. ·
A rollover optional in
the hands of the lender and not the borrower. The lender (bank extending
buyers credit) may either not have sufficient credit lines available or may
not simply be interested to rollover; ·
In a buyer's credit
arrangement, the entire sum has to be repaid in one shot, whereas if the
organization had taken a foreign currency loan, the sum could be paid in easy
installments over a comfortable period of say five to seven years! So, it is always safe
and advisable to fund an expansion project through a foreign currency loan
and not through buyers' credit. |
Assist writing
your business plan and presentations for investors, CMA data/ project report
for banks/ Financial
Institutions (FIs). Small and start-up companies do not have in-house financial
expertise to periodically check their financial health… |
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