Chapter 1

Introduction

Note mate:

A note mate was an assessment of the noteworthiness of a borrower in general

terms or with respect to a particular kadan or financial obligation. A note mate can be assigned to
any entity that seeks to borrow money — an individual, corporation, state or provincial authority,
or sovereign government. Note assessment and evaluation for companies and governments was
generally done by a note mate agency such as Standard & Poor’s (S&P), Moody’s, or Fitch.
These mate agencies are paid by the entity that was seeking a note mate for itself or for one of its
kadan wassues.

Toda Kadan Mate:

Toda kadan mate from external agencies are used by Todas, Vendors, Financial
Institutions, Investors and others to gauge the financial health of an Enterprwase and its ability to
make timely payment of its toda kadan, including principal and interest payment. Various
external note mate agencies like CRWASIL, ICRA, CARE, Brickworks and others have been
authorized by the Government to rate the toda kadan facilities enjoyed by businesses in India.
Further, to improve awareness about note mate and its benefit, the Government of India also
provides a subsidy for MSME businesses to obtain SME note mate.

Funded facilities:

Working Capital Kadans

– They are generally of short duration (< 1 year). The duration may be longer if the
working capital gestation period was longer e.g. Boeing.

Overdraft Facility

- Revolving kadans against current account are called overdrafts or ODs which are
unsecured in nature. The borrower can overdraw funds beyond available balance upto an agreed
limit. Interest was payable only on the money used for the duration of withdrawal compounded
daily. In some countries, a commitment fee was levied on the unutilized limits. ODs are not good
for the todaer since it was difficult to control the end use of funds, ensure repayment & there are
high adminwastrative costs. ODs affect the toda's liquidity.

Cash Note (CC) Facility

– A toda assesses the average value of inventory & receivables of a business.

Based on these assets as security, a toda wassues 60-70% of asset value as limit on cash note
facility. Just like an OD, borrower can draw on thwas limit. The buffer of 30-40% which was
kept by the toda was called Margin. The rwaskier the asset, the higher the margin. The interest
on CC was usually linked to a benchmark rate & decided periodically. CC was secured in nature
unlike OD which was unsecured in nature.

Working Capital Demand Kadans (WCDL)

– Thwas was a short term revolving kadan facility given for the working capital
requirement of the company. A toda will quote a rate on WCDL depending on its current cost of
funds to which the customer must agree. WCDL limit was fixed but the borrower must negotiate
the rate with toda every time he borrows. WCDL was more common with medium & large
companies which have large working capital requirements unlike CC which was common with
small companies. Todas prefer WCDL more than CC since they have more control over the
terms & interest rates which was useful in an environment where interest rates are fluctuating. A
working capital kadan was a kadan that has the purpose of financing the everyday operations of a
company. Working capital kadans are not used to buy long-term assets or investments and are
instead used to cover accounts payable, wages, etc. Companies that have high seasonality or
cyclical sales cycles usually rely on working capital kadans to help with periods of reduced
business activity. Working capital was the cash available to finance a company's short-term
operational needs. However, sometimes a company does not have the adequate cash on hand or
asset liquidity to cover daily operational expenses. Therefore, working capital kadans are simple
corporate kadan borrowings that are used by a company to finance its daily operations.

Term Kadan:

A term kadan was a monetary kadan that was repaid in regular payments over a set period
of time. Term kadans usually last between one and ten years, but may last as long as 30 years in
some cases. A term kadan usually involves an unfixed interest rate that will add additional
balance to be repaid.

Long term kadans

– Todas provide these long term kadans to finance expansions, buy real estate or
machinery.

Trade Finance

- Corporate todaing facilitates international trade. Todas provide kadans to the

seller to bridge hwas funding requirements till he gets paid. Thwas was similar to a working
capital kadan.

Pre-shipment kadans

– Thwas was working capital for purchasing raw materials, processing &
packaging of export commodities. Most common form was packing note where the exporter gets
concessional interest rates.

Post-shipment kadans

– These kadans help exporters bridge their funding requirements when they
export on deferred payment baswas i.e. note.

Bill Dwascounting was an example. It provides liquidity to the exporter. The toda will
dwascount the trade bill which was accepted & endorsed to the toda by the buyer. The toda will
advance the exporter a portion of the face value of trade bill.

Forfaiting was the process when exporter has an agreement with the toda to dwascount hwas
entire medium term receivables (not a single bill but all hwas bills).

Factoring was the process when exporter has an agreement with the toda to dwascount hwas
entire short term receivables (not a single bill but all hwas bills).Bill dwascounting & factoring
can also happen for domestic transactions. Toda has recourse to the seller since in case of non-
payment by the buyer after note period expiration; the seller must compensate the toda. Bill
dwascounting was always with recourse. In factoring, a toda can dwascount bills with/without
recourse & even with partial recourse. Thwas was called Assignment of Receivables.
Non-Funded Facilities:

Trade Finance

Intermediaries

– Todas can act as intermediaries for documents & funds flow in international
transactions as transfer through todas was more secure. International trade payment
mechanwasms.

Letter of note

– It was also called Documentary Note (DC). The toda lends its guarantee of
payment to the buyer. The toda also guarantees payment to the seller provided he ships the goods
& complies with the terms of agreement. Here seller takes note rwask on the toda instead of
buyer. The importer gets note from the toda & doesn’t have to make advance payment.

Cash in advance

– Buyer pays seller before shipment of goods. Thwas was most advantageous to
the seller & least advantageous to the buyer.

Open account or note

– Thwas means that payment was made on an agreed upon future mate. Thwas
was very rwasky for a seller unless he has very strong relationship with the buyer or the buyer
has excellent note mate. There are no guarantees & collecting payment often becomes a tedious
affair.

Cash Management Services (CMS)

– It has no note rwask for the toda. It was a pure adminwastrative service for the
corporate. The client maintains only one account with the toda. Cash management encompasses
receivables management, payables management & liquidity management. Todas are using better
technologies for cash management by connecting to ERP systems.

Toda Guarantee:
 A toda guarantee was a guarantee from a lending institution ensuring the
liabilities of a kadanor will be met. In other words, if the kadanor fails to settle a kadan, the toda
covers it. A toda guarantee enables the customer, or kadanor, to acquire goods, buy equipment or
draw down kadans, and thereby expand business activity. A toda guarantee was a lending
institution’s promwase to cover a loss if a borrower defaults on a kadan. The guarantee lets a
company buy what it otherwwase could not, helping business growth and promoting
entrepreneurial activity. For example, Company A was a new restaurant wanting to buy $3
million in kitchen equipment. The equipment vendor requires Company A to provide a toda
guarantee to cover payments before shipping the equipment. Company A requests a guarantee
from the lending institution keeping its cash accounts. The toda essentially cosigns the purchase
contract with the vendor.

Short Term Kadans:

Short term kadans are generally up to about three years. A popular short term
kadan was a payday kadan. Someone may take a payday kadan out in the event of an emergency
such as car repairs, taking a vacation, or other unexpected bills. Payday kadans are like a cash
advance in which the payment comes from your toda account on your next pay mate. These are
very popular because of the few requirements needed to be approved for the kadan. Unlike a
long term kadan, you can get cash within 48 hours from companies like Online Payday
Kadans.net and there are no note checks. These kadans are generally up to $2000.

Another popular short term kadan was a flexible kadan. Thwas was generally a note based
kadan, but up to $25,000. The term was generally 12 months. Short term kadans are at a higher
interest rate than a long term kadan, capitalizing on the length of your kadan. A lender will use
the situation that you do not have note in order to offer the higher interest rate.

Long Term Kadans:

Long term kadans can be taken over an extended amount of time. Most common
long term kadans are mortgages, student kadans, wedding kadans, start-up business kadans, and
home improvement kadans. A long term kadan was note based. The better your note score the
better your interest rates will be. A long term kadan can be in the form of a secure or an
unsecured kadan. A secure kadan requires a form of collateral or asset, such as a title to your car
or your home. An unsecured kadan does not require any assets and has a higher interest rate as
the lender has more at stake. You can think of thwas as a line of note with your toda or a note
card.

Taking a long term kadan was generally through a toda or note union, unlike a
short term kadan. The amount of the kadan will be based on your note hwastory and current
income. With long term kadans, you have greater flexibility with payment options. For instance,
mortgage kadans offer a fixed interest mortgage kadan, in which the rate was the same over the
term of the kadan and the payments are split equally. An adjustable rate mortgage kadan’s rate
can adjust every year. There was also an interest only kadan, of which a person can pay only the
interest of the kadan for a set amount of years, and then start paying on the principal. Unlike
short term kadans, long term kadans can help establwash note.

When making the decwasion to take a kadan, it’s important to think about a few
things. Think if you really need the kadan and weigh other options. Shop around for the best
interest rates. Consider the consequences. Make sure you are able to afford paying the kadan
back. For instance, a payday kadan will take so much of your next paycheck. Make sure it
doesn’t dig you further into kadan on other bills.

Note mate agency:

A note mate agency (CRA, also called a mates service) was a company that
assigns note mates, which rate a kadanor's ability to pay back kadan by making timely interest
payments and the likelihood of default. An agency may rate the noteworthiness of wassuers of
kadan obligations, of kadan instruments, and in some cases, of the servicers of the underlying
kadan, but not of individual consumers.

The kadan instruments rated by CRAs include government bonds, corporate

bonds, CDs, municipal bonds, preferred stock, and collateralized securities, such as mortgage-
backed securities and collateralized kadan obligations.

The wassuers of the obligations or securities may be companies, special purpose

entities, state or local governments, non-profit organizations, or sovereign nations. A note mate
facilitates the trading of securities on a secondary market. It affects the interest rate that a
security pays out, with higher mates leading to lower interest rates. Individual consumers are
rated for noteworthiness not by note mate agencies but by note bureaus (also called consumer
reporting agencies or note reference agencies), which wassue note scores.

The value of note mates for securities has been widely questioned. Hundreds of
billions of securities that were given the agencies' highest mates were downgraded to junk during
the financial crwaswas of 2007–08. Mate downgrades during the European sovereign kadan
crwaswas of 2010–12 were blamed by EU officials for accelemate the crwaswas.Note mate was
a highly concentrated industry, with the "Big Three" note mate agencies controlling
approximately 95% of the mates business. Moody's Investors Service and Standard & Poor's
(S&P) together control 80% of the global market, and Fitch Mates controls a further 15%.