Allahabad Bank Trade Finance Scheme

Allahabad Bank is a nationalized bank headquartered in Kolkata, India. It is the oldest joint stock bank in India with over 3000 branches spread across India. On 24 April 2014, the bank entered into its 150th year of establishment. In this article, we look at the Allahabad Bank Trade Finance Scheme in detail.

Trade Finance Scheme

The Allahabad Bank Trade Finance Scheme is aimed at providing finance for trader involved in the selling of goods and service. Traders who are proprietary firms, partnership firms, companies, co-operative societies, one person companies - involved in any lawful trading activity is eligible under the scheme. To be eligible under the scheme, the business must have appropriate registration or incorporation or tax licenses or trade licenses as per the local jurisdiction. Further, the applicant must be in the line of business for at least one total financial year for which Income Tax Returns have been submitted together with Statement of Financial Result’s or Financials accordingly certified by a firm of Chartered Accountants adequate to the sanctioning authority. Finally, the unit must be a profit-making.

Purpose of Loan

Allahabad Trade Finance Scheme is provided mainly for working capital purposes to help traders meet their day to day working capital requirements like inventory stocking, receivable funding, etc., In addition to the trade finance scheme, based on the requirement of the unit, a term loan can also be sanctioned for acquiring or construction of premises, go-downs on ownership basis necessary for managing the business or for repair, furnishing, renovating existing business premises and or purchase of furniture and fixtures and for purchase of brand new equipments, business tools, computers, UPS, etc.

Amount of Loan

Loan of upto Rs. 5 crores can be sanctioned under the scheme. The following margin must be furnished by the promoters while availing the bank finance:

25% on stocks
30% on receivables up to 90 days only
25% on term loan approved for equipments, tools, furniture and fixture, computer hardware etc.
50% on term loan sanctioned for acquiring or construction of premises, godowns.
20% cash for Letter of Credit or Bank Guarantee.

Collateral Security

Collateral would be required. Usually, exclusive hypothecation charge on stocks, book debts and other current assets and special hypothecation charge on all fixed assets such as, equipments, business tools, computers, furniture & fixtures etc. of the unit is required. In the event of loan approved for acquiring or construction of premises on ownership basis, the property must be mortgaged in favour of Bank as per Bank’s manual of mortgages. Collateral security in the form of NSC’s, LIP i.e. Surrender Value or any other tangible security with realizable value at least corresponding to 75% of the total exposure can also be provided for existing units. For new units, collateral security in the form of NSC’s, LIP i.e. Surrender Value or any other solid security with realizable value at least equal to 100 % of the total exposure may be mandated.

Personal Guarantee

In addition to the collateral security, personal guarantee of the promoters would also be required as follows:

In case of Partnership firms, personal guarantee related to all the partners.
For 1, a personal guarantee from all the promoter directors necessary.
For Public Limited companies, personal guarantee of at least one of the promoter directors and/or directors with the main financial stake in the business necessary.

Loan Repayment

In case of the term loan, depending upon the cash flows and effective life of the equipment, a maximum of 84 months inclusive of the moratorium is provided. In case of the clean term loan, maximum tenure of 3 years dependant on cash flows is provided. All working capital facilities must be renewed each year and are subject to assessment every year.

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Frequently Asked Questions

Common questions about Trade Finance Scheme India.

The Allahabad Bank Trade Finance Scheme is aimed at providing finance for traders involved in the selling of goods and services. It is designed to meet the working capital requirements of traders, such as inventory stocking, receivable funding, and other day-to-day expenses.

Traders who are proprietary firms, partnership firms, companies, co-operative societies, or one-person companies involved in any lawful trading activity are eligible under the scheme. They must have appropriate registration, incorporation, tax licenses, or trade licenses as per the local jurisdiction and be in business for at least one financial year.

The loan can be used mainly for working capital purposes like inventory stocking, receivable funding, and other day-to-day requirements. Additionally, a term loan can be sanctioned for acquiring or constructing premises, godowns, repairing or renovating existing business premises, purchasing furniture, fixtures, and brand-new equipment, business tools, computers, and UPS.

Loans of up to Rs. 5 crores can be sanctioned under the Allahabad Bank Trade Finance Scheme.

The promoters must furnish a margin of 25% on stocks, 30% on receivables up to 90 days, 25% on term loans approved for equipment, tools, furniture, and fixtures, 50% on term loans sanctioned for acquiring or constructing premises or godowns, and 20% cash for Letter of Credit or Bank Guarantee.

Collateral security is required, usually in the form of an exclusive hypothecation charge on stocks, book debts, current assets, and a special hypothecation charge on fixed assets like equipment, tools, computers, and furniture. For premises or godowns, the property must be mortgaged in favor of the bank.

Yes, personal guarantees from the promoters are required. For partnership firms, all partners must provide personal guarantees. For private limited companies, all promoter directors must provide personal guarantees, and for public limited companies, at least one promoter director or a director with a significant financial stake must provide a personal guarantee.

For term loans, a maximum tenure of 84 months, including the moratorium period, is provided, depending on the cash flows and effective life of the equipment. For clean term loans, a maximum tenure of 3 years is provided, subject to cash flows.

All working capital facilities must be renewed each year and are subject to assessment every year.

Yes, the article mentions that the unit must be a profit-making business to be eligible under the Allahabad Bank Trade Finance Scheme.