CredAvenue – Vendor Financing
Types of vendor finance
1. Debt Vendor Financing:
In debt vendor financing, the borrower will receive the goods or services at a selling price, but the borrower will have to pay interest to the vendor at an agreed rate.
If the borrower can’t repay the loan, the borrower will be designated as a defaulter, and the loan amount will be written off as bad debt.
Upon being declared a defaulter, the borrower will be barred from entering into another debt vendor financing agreement.
2.Equity Vendor Financing:
During an equity vendor financing transaction, the vendor will sell his goods or services in exchange for a predetermined amount of the borrower’s stock. Because the vendor is compensated in shares, the borrower will not be required to make a cash payment to the vendor.
The vendor will be treated as a shareholder in the company and will receive dividends in proportion to the number of shares held. Additionally, the vendor will become a part of the borrower’s management. Generally speaking, the greater the number of shares owned, the greater the influence on business management.
Our SCF platform helps you meet with your vendor financing needs!
Benefits of Vendor Financing with CredAvenue
Benefits of Vendor Financing to Borrowers:
✓ If the borrower has a satisfactory business relationship with the vendor, the vendor might lend the funds without charging any interest.
✓ Vendor finance helps the borrower keep the production or operations of their business uninterrupted.
✓ The borrower can pay off the loan with the profits they make from the sale of goods or services.
✓ It helps the borrower with good cash flow to run their business smoothly.
✓Compared to bank loans, vendor finance is typically less complicated to obtain and requires significantly less documentation, which makes the transaction 5x quicker.
✓Borrowers who are ineligible for bank loans can take advantage of vendor financing.
✓ When the borrowing company purchases more, it can sell more, resulting in a win-win situation for both vendors and borrowers alike.
Benefits of Vendor Financing to Vendors:
✓ Vendors can earn interest on the loan amount borrowed.
✓ Increased customer retention and consistent sales are possible for the vendor.
How does Vendor Financing work?
Let’s understand how Vendor Financing works with the help of an example:
Mr. Suresh, a milk distributor with a small store located in a petrol pump, isn’t getting a lot of customers. So he decides to sell milk to his existing customers via home delivery and agrees to be paid monthly.
He finishes all of his orders in the first month, proving that his new concept is a success. His home delivery business grows in the second month, but he can’t keep up with the demand for deliveries and the high fuel price.
He applies for a loan at a bank, but his application is turned down. To slow down the supply of his product, he contacts his vendor and describes the situation.
The vendor recognizes the problem and decides to sell the milk without receiving payment upfront from Suresh, instead of agreeing to receive payment after Suresh’s customers pay him but with an additional 10% interest.
Here’s the step by step process of how vendor finance works:
✓ The vendor evaluates the borrower’s business and draughts the terms and conditions of the financing.
✓ The borrower will agree to the terms of the vendor and will make a down payment on the purchase.
✓ The vendor will begin selling the goods or services by charging interest on the amount paid for the goods or services.
✓ The borrower will sell the goods or services to their customers and then repay the vendor the money loaned to them.
Why is Vendor Financing for you?
With CredAvenue’s CredSCF platform, you can enjoy the below features:
✓ Minimal and easy documentation
✓ Intermittent negation of interest by the vendor
✓ Quick loan approvals
✓ Short term capital loan
✓ The vendor might provide you with a loan without collateral
✓ Get a loan proportional to the business requirement only
✓ Various repayment options are available
✓ Improved relationship with the vendor
✓ Pay off the loan with profits
✓ Continuous cash flow for smooth functioning of the business
What is third-party vendor financing?
It is a financing arrangement where a third-party vendor like CredAvenue provides the loan.
What is the vendor finance business?
It is a business model in which lending institutions provide loans to borrowers rather than vendors themselves.
Why should a business opt for vendor financing?
Companies can use a vendor financing option like CredSCF with a low credit score to obtain a business loan and those who do not want to pay for goods or services in cash upfront.