Channel Financing: Term Which Many Businessmen Are Unaware of

Channel Financing

SMEs account for over 45% of India’s total manufacturing GDP and are responsible for employing over 40% of the country’s workforce channel financing.

Consequently, the Government of India has rolled out several credit schemes and programmed to boost the country’s economy through SMEs.

Similarly, several lending institutions are now providing small and medium entrepreneurs with numerous financial products to meet specific business funding needs.

Regardless, many entrepreneurs still struggle to avail the required assistance due to the lack of necessary information about business finance and its specific products.

For instance, channel financing remains to be one of the least-known business finances despite its customised features and benefits.

Understanding channel financing

Channel finance is a funding mechanism through which dealers acquire short-term financial assistance with the primary purpose to boost their working capital for an unhindered supply chain flow.

 It is mostly concerned with the following –

  • Managing the flow of cash between dealers along the supply chain in the form of payments or advances.
  • Managing flow of funds across the said chain in the form of invoices, payment approvals, purchase orders, etc.

Under this facility, dealers and suppliers avail loans to fulfil their working capital requirements across the various channels of a supply chain.

The financing mechanism allows businesses serving as supply chain linkages to funding their monetary needs, which is why it is a subset of an all-encompassing business loan provided from leading financial institutions.

By availing this financing facility, dealers serving as channel partners can make use of new opportunities and bring about efficient growth.

It helps them to stock up the required inventory of supplies by paying off their sellers in advance and make necessary monetary allocations. In turn, it ensures seamless operation and prompt realisation of receivables. 

Types of channel finance

In a broader sense, the following products are offered under channel financing –

  1. Vendor finance: Makes for a source of working capital available to vendors at a nominal rate of interest.
  2. Dealer finance: Provides a source of working capital to dealers and distributors at a nominal rate of interest.

Notably, individuals need to meet a set of eligibility criteria and submit a handful of documents to avail channel finance from any leading financial institution.

Bajaj Finserv is one such lender providing funding such as business loans and their subsets like working capital loans which dealers and suppliers can avail against minimum eligibility.

They also provide their customers with lucrative pre-approved offers which make the process of availing financial assistance more convenient and time-saving.

Such offers can be availed on multiple financial products, including personal loans and business loans. Check your pre-approved offer in a few steps by simply entering your name and contact number.

While at it, entities must also look at the important checklist before applying for a business loan. It will help them to make a more informed decision pertaining to their choice of credit and will help streamline the process accordingly.

Eligibility criteria

Anybody fulfilling these following criteria can avail channel financing in the form of business or working capital loans from reputed lenders.

  • Should be between the age of 25 and 55 years.
  • Should have a business vintage of at least 3 years.
  • IT Return should have been duly filed for at least one previous year.
  • Must have a stable income and a good credit score, preferably above 750.

It must be noted that a financial institution may ask an individual to meet additional criteria to benefit from the said financing option.

Documents required

Here is a list of documents required for a business loan like channel financing.

  • KYC documents.
  • Proof of income.
  • Proof of address.
  • Business ownership proof.

Notably, the documents for self-employed professionals and non-professionals may tend to vary. Individuals must find out about the same to back their eligibility fulfillment.

Entrepreneurs who deal in exports can look for credit options like export finance as well to meet their working capital requirements effectively. To avail a channel financing option at a reasonable rate of interest, make sure to compare lenders before applying.

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