Infrastructure Funding India
India has the massive potential to become a global superpower, and this growth is supported by three major pillars. The first pillar is our young and dynamic population. The second pillar is the steadily rising income of our citizens. The third and most vital pillar is our rapidly improving national infrastructure.
There is a well known rule in economics that whenever and wherever you build a road, overall development follows it instantly. This happens because excellent infrastructure, including roads and highways, helps businesses move goods much better and faster. When products and services are easily available, it simplifies daily business operations for everyone.
Infrastructure Sector
Infrastructure, that includes many vital services and not only just roads and bridges, is the foundation of our society. It encompasses primary industries which includes waste management, telecommunications, power and energy, water, and aviation, among others. Any business engaged in these sectors makes a direct or indirect contribution to the infrastructure industry.
Working Capital Needs in the Infrastructure Industry
The working capital requirements for companies in the infrastructure industry differ from other sectors due to high project costs and milestone-based payments from public and private customers.
The government is the biggest customer. It can float the tender directly or through a public entity. If it is government funding, the company may majorly need the working capital in the form of a Bank Guarantee, which forms part of the non-fund-based limit. At the time of taking the order from the government, the company needs to submit the BG and the government will start releasing the payment on a milestone basis.
The working capital cycle changes when the company is working with private companies. Here generally you do not need to submit the bank guarantee. You will need the CC facility or OD Facility to procure the material and pay for your labour. Generally, the payment gets released based on the milestones and is typically paid within 30-90 / 120 days as per the payment terms.
Financial Backing for Infrastructure Projects
Funding is available for a wide array of infrastructure projects, including but not limited to:
- Transmission, Electricity generation, and distribution,
- Oil and gas pipelines
- Roads (HAM)
- Bridges
- Ports
- Shipyards
- Airports
- Railway infrastructure
- Solid waste management
- Water treatment plants
- Telecommunications, including telecommunication towers
- Educational institutions
- Hospitals
- Affordable housing projects
Impact of Infrastructure Funding
China’s much faster product delivery times stand out when comparing the two countries’ industrial sectors. China’s advanced infrastructure, which shortens delivery times and decreases material prices, is partly responsible for this efficiency. Shorter delivery times also enable firms to have low amounts of inventory. Thanks to advancements in infrastructure, several Indian businesses are already implementing a zero-inventory approach.
Debt Instruments for Infrastructure Companies
Multiple factors need to be considered while raising funds for the infrastructure companies. Below are a few of the standard debt instruments. However, getting tailor-made instruments is preferred.
1. Bank Guarantee
2. Cash Credit
3. Overdraft
4. Vendor Financing
5. Sales Invoice Discounting
6. Working Capital Term Loan
7. Working Capital Demand Loan
8. Dropline Overdraft.
Eligibility To Raise the Working Capital
There are different debt instruments. Each instrument has its criteria for raising the funds. Below are a few of the most important and preferred criteria –
- Minimum 3 years of business vintage
- Good Credit score
- Your operational location
- Your last year’s sales and profit
- Current Year Sales
- Current work order in hands
- Existing debt of the company and regular repayments
- Indian Shareholding.
These are the few most important criteria. And others may vary from company to company.
