India’s emergence as one of the leading destinations for start-ups has affected the economy positively. Currently, there are thousands of small businesses working alongside big corporates, and they are equally important to this country and the big business houses.

However, not every small and medium scale business has a huge working capital reserve to bank upon in case of any financial emergency. In such cases, they can resort to channel financing to solve their cash crunch.

What is channel financing?

This is a particularly curated debt instrument that extends financial assistance to various stakeholders of a supply chain. Here, a lender offers short-term working capital loans to companies that have a working relationship with corporates.

The idea behind this financing method is that big corporates often deal with various MSMEs for raw materials and the distribution of their products. In a supply chain like this, if a company suffers from any trouble, it will disrupt this entire process.

Therefore, to ensure that every component, be it a supplier or a dealer, can run the business operations smoothly, this method extends necessary funding to eliminate any financial stress.

Know how channel financing can solve the cash flow problem of a business

Channel financing aims to eliminate any disruption in the supply chain owing to a financial crisis. In this regard, lenders offer necessary funds to vendors or dealers to manage their business expenses.

Here are some ways that this financing method can help businesses –

  • Resolves cash flow issues

A steady cash flow ensures the smooth running of business operations, especially in a supply chain where various components are attached to a single system. Therefore, to keep this system running, this debt instrument plays a big role.

With its help, vendors can receive their payment for raw materials. Whereas dealers can access necessary funds to clear a manufacturer’s inventory, enhancing liquidity across this system.

This access to quick funds allows each stakeholder to operate smoothly and increase their capacity to maintain an uninterrupted chain of activities.

  • Bolstering the working capital

Apart from meeting the liquidity crisis, this method of business finance can also help companies to fulfil their working capital needs.

Working capital is a vital part of any business as it manages the day-to-day operations of a company. Thus, with regular payment through this credit method, firms can maintain their financial stability and improve working capital to strengthen their position further. Also, at the same time, individuals should also know how much working capital their business needs to apply accordingly.

  • Moderates bad debts

Bad debts are a concern and a source of financial instability as well. However, with this financing method, one can get rid of such problems. Since it helps suppliers and manufacturers to clear their dues on time, they can now stop worrying about non-payment.

Even though channel financing offers a great way to secure necessary funds, entrepreneurs can opt for a more comprehensive credit instruments like business loans for hassle-free funds. This unsecured mode of credit offers more flexibility, both in terms of availing it and repayment. Also, leading financial institutions like Bajaj Finserv allow their customers to avail credits within 24 hours of approval to help them meet emergency requirements.

The availability of pre-approved offers further expedites this application process. Such offers aim to reduce the application time significantly and are available on products like business loans, personal loans, etc., individual can check their pre-approved offer by submitting essential contact details.

Channel financing is a lending method to keep a supply chain operation continuous, without any hindrance. However, borrowers can also resort to business loans as an alternative and know how it can help them to successfully implement a big project.