Recent years, small and medium-sized enterprises have been growing spryly in economic development. For the purpose of better serving the small and medium-sized enterprises and seizing the first chance in small and medium-sized enterprises market, Industrial Bank took the lead in carrying out the financial service solution, "Golden Sesame", which was specially tailed for small and medium-sized enterprises. The solution covered 3 main circulating processes (production, purchase and distribution), and included 8 financial service schemes focusing on low-cost purchase, purchase financing, purchase expansion, express reflow of fund, sales expansion, bad debt avoidance, temporary fund lack and venture capital investment. In virtue of convenient products as chattel pledge, work plant mortgage, discount on commercial acceptance draft, pledge against commercial acceptance draft, T/T against credit line, and factoring financing, the solution solved "8 long-standing financing problems" that had baffled small and medium-sized enterprises in one package.
Commodious Work Plant for Small Enterprises
Lack of self-accumulation and disability of purchasing work plant are always the soft spots that hinder the advancement of small and medium-sized enterprises. Without a self-possessing work plant, small and medium-sized enterprises may have to face the soaring rents and endless relocating that will increase the operational cost and lick up the slender profits. On the other hand, absence of work plant will also result in banks and suppliers' suspicion on enterprises' stable operational, which will lead to unnecessary credit discrimination. Therefore, allocating limit fund to fixed assets investment or to liquid capital supplementation is the dilemma for most growing enterprises.
Aiming at the above dilemma, "Golden Sesame" launched by Industrial Bank carried out a kind of new loan business, work plant mortgage. Small and medium-sized enterprises can apply Industrial Bank for the loan to purchase self-used standard work plant (including completed work plant and forward delivery work plant). The credit line will be up to 60% of the purchasing price or appraisal value and the credit term will last for 5 years longer. Besides the purchase of self-used standard work plant, financing for self-constructed work plant and purchasing of other commercial housing are also available for enterprises in line with the regulation of work plant mortgage.
Eliminating the obstacle caused by work plant will help small and medium-sized enterprises realize the plan of fixed assets investment, create conditions for production-capacity expansion, relieve the pressure by liquid fund and improve the velocity efficiency of capital. At the same time, flexible and diversified repayment ways of work plant mortgage also conduce to reducing the financial cost of the enterprises and achieving win-win outcome.
Ease Financing against Commercial Acceptance Draft
Under "Golden Sesame", financing against commercial acceptance draft provides low-cost purchasing scheme for small and medium-sized enterprises. With the guarantee by banks, the credit of the banks was added to the commercial acceptance draft. This greatly boosted the credit of the commercial acceptance draft, facilitated the employment and circulation of commercial acceptance draft, and saved the financial cost of enterprises.
Take one steel distributor in Shanghai for instance. The company was the exclusive distributor of one steel company in Shanghai, whose semiyearly purchasing plan amounted to RMB 500 million. In the past, the company usually adopted the short-term loan to acquire liquid capital for payment issue. However, after studied the operational status and supplier situation of the company, industrial bank suggested the company to finance by the way of discounting commercial acceptance draft and listed out the cost difference between two financing ways for the company. Through traditional short-term loan, the financial cost will be: (RMB 500 million X 5.4%) / 2 = RMB 13.5 million (the annual rate for 6 months short-term loan is 5.4%); and through financing against commercial acceptance draft, the financial cost will be: RMB 500 million X 1.5% = RMB 7.5 million (the annual discount rate is 3.0% with buyer paying for the interest). Comparing the two financing ways, financing against commercial acceptance draft will save up to RMB 6 million financial cost for the company.
On the other hand, the traditional short-term loan will suffer restriction by the approving processes and it is possible for the company to miss the optimal sales opportunity. Nevertheless, the discounting of commercial acceptance draft can be fully conducted by enterprises. The purchasers can conveniently employee the commercial acceptance draft discounted and guaranteed by the bank to meet their purchasing demand. Currently, under the unsound commercial credit system that existing in China , opening the commercial acceptance draft independently represented a sound reputation, while cooperating with creditable partners is the desire of most enterprises. Therefore, the employment of financing against commercial acceptance draft will open up a more capacious space for distributors.
New Path Breaking for Chattel Financing
"Golden Sesame" created a brand-new pattern for purchase financing in small and medium-sized enterprises. By pledging their chattel, enterprises can be granted certain credit line to satisfy their needs for liquid capital during production processes. Credit business against pledge covers short-term loan for liquid capital, trade financing, discount business, acceptance business and financing against commercial acceptance draft.
Usually, enterprises need to pledge their fixed assets and supply certain guarantee to apply for the loans. However, because of the lack of guarantee resource and fixed assets, most small and medium-sized enterprises are difficult to acquire loans. Chattel financing offered by Industrial Bank created a chance for the enterprises to pledge their raw materials, semi-final products, final products, and even the cargoes on the way. With chattel financing, enterprises can liquidized the above chattel and turn them into financing capital or cash. If the cash and the capital were used for other liquid purpose, the velocity of the capital would be greatly boost, which would finally result in production and sales expansion.
Reflow of Fund without Loan Application
"All in One Bill" scheme under "Golden Sesame" offered solution for express reflow of fund. By issuing L/C or banker's acceptance bill, the solution effectively combined the export and import settlement business with domestic purchase or sales. On the basis of enterprises' real trading background and the credit situation of enterprises' supplier and buyer, the certain credit line will be granted to the enterprises, and the sales revenue or forward cash income derived from the trade will be considered as the source of enterprises' repayment to the bank.
Mr. Zhang operates a small and medium-sized company that mainly deals with steel business. Recently, the company prevailed in a bid inviting for steel materials held by a dockyard and acquired a mega order. However, for a new company, lack of fund becomes a great obstacle. Mr. Zhang's company is incapable of undertaking money advanced for raw materials for the reason of limited revolving fund, and is hard to acquire loans because of short history of operation, lack of fixed assets to pledge and having no competent guarantor. The problem is the common issue that most small and medium-sized enterprises have to face during their growing period.
"All in One Bill" scheme carried out by Industrial Bank helped Mr. Zhang's company out of the hot water. Firstly, Industrial Bank issued L/C for MR. Zhang's steel supplier (the importer). Secondly, when the cargo arrived at the warehouse, Industrial Bank issued a banker's acceptance bill against the cargo for Mr. Zhang, which designated the payee to be the supplier (the importer). Then, the cargo consignment finished. Thirdly, Mr. Zhang's company settled partial payment with the bank as guarantee fund, and delivered the steel with corresponding value to the dockyard. With the fund collected from the dockyard, Mr. Zhang's company continued to pick up the goods according to certain guarantee amount until finished the contract successfully.
As an applicant, Mr. Zhang's company didn't have any cash on hand during the whole process. Through banker's acceptance bill, the company purchased goods with value that was 3 to 4 times of the guarantee fund, increased 50% sales with limit self-raised fund, and shortened 1/3 revolving cycle of the fund. With the participation of both supplier and buyer, the need for liquid fund was fully satisfied. On the other hand, by designing solution that based on the benefits among the enterprise, supplier and buyer, Industrial Bank formed a self-compensated trade financing chain to assure the security of financing fund.