A type of credit facility granted to the eligible current account holder. The borrower is allowed to issue cheques exceeding the credit balance in the current account but subject to a certain pre-approved limit granted by the financial institution.
TRADE FINANCING (MOL)
In addition to the working capital financing, financial institutions also provide financing for SMEs that are involved in domestic and international trade. Some of the common trade financing facilities provided by financial institutions are as follows:
LETTER OF CREDIT (LC) OR DOCUMENTARY CREDIT (DC)
For import or local purchases of goods, materials or equipment.
A written undertaking by a financial institution to pay a seller a given amount of money subject to the following conditions:
• On presentation of specified documents as set out in the terms and conditions of the LC
• Within a specified time limit
• At a specified place
• Can assure payment is made to the beneficiary
• Able to obtain a lower purchase price of the goods and longer payment terms, as the LC provides an indication of payment assurance, from the sellers’ perspective
• Documents presented will be examined by trade financing specialists
• Do not have to communicate with the foreign seller so often since the whole transaction will be routed through and handled by the financial institution
Extends credit facility on bills drawn under the financial institution’s own LC. As such, customers do not have to make immediate payments on the LCs.
A financing facility that enables a customer to accept delivery of their local/foreign purchases prior to payment of the sight bills being made by them.
• Enables the customer to pay the seller promptly
• Enables the customer to take delivery of the goods without paying for it immediately
• Able to ease cashflow
BANKER’S ACCEPTANCE (BA)
Financing of a bona fide trade i.e. export, import or domestic trade transaction.
A draft (Bill of Exchange) drawn by customers to their order, payable on a specific future date and accepted by the financial institution for the purpose of financing a bona fide trade Benefits
• Able to obtain immediate funds upon presentation of necessary documents
• Able to improve cash flow of the business since SMEs can obtain immediate funds from the financial institution
FOREIGN EXCHANGE CONTRACTS (FEC)
Generally for businesses, with the following features:
• Regularly importing or exporting in foreign currencies
• Of a sizeable level
• With credit standing that is acceptable to the financial institution
The buying and selling of foreign exchange on a spot or forward basis, in respect of foreign proceeds or payments to be made at sight or at a future determinable date. The minimum amount of financing is RM50,000 and in multiples of RM1,000 (Bunching is allowed)
• Provides cash flow before proceeds for sale of goods on credit can be collected, or to finance purchases of raw materials for production
• Can always be sold at the prevailing market rate should the customer need immediate funds
• Provides two-way financing as BA financing is applicable for sales and purchases
BILLS OF EXCHANGE PURCHASED (BEP)
As a means of working capital financing for exporters.
A facility provided by the financial institution for exporters, whereby the financial institution may purchase customers’ outward bills for collection and the customers’ account is credited immediately with the proceeds