Caspian Impact Investments (CII) provides debt finance to professionally managed and high growth financial institutions and Small & Medium Enterprises in India that solve problems across high impact sectors like food & agriculture, clean energy, healthcare, education and financial inclusion.
Such enterprises do not get complete access to debt finance from traditional financiers because: a) they are new age businesses with an asset light model, and hence cannot offer mortgage/hard collateral or b) they are yet to make profits, because they have strategically chosen to grow first with adequate support from institutional equity investors or c) they grow very fast and their working capital requirements grow faster than turnaround time traditional financiers take.
As a result, such professionally managed companies end up raising external equity for meeting even the working capital requirements. This leads to accelerated dilution of entrepreneurs’ shareholding before the company reaches full potential. CII provides customized debt finance enabling such professionally managed companies to grow, without requiring the entrepreneurs and existing investors to dilute their shareholding. CII provides a variety of debt products to enable this.
Types of credit facilities:
CII debt products include, senior secured debt, senior unsecured debt and subordinated debt in the form of loans or debentures. We also invest in securitisation transactions and commercial paper. CII lends to financial institutions and to small businesses, but not to retail/individual customers.
The facilities provided are broadly of two types:
Term Loans (with amortising or bullet repayment)
Lines of Credit (with flexible drawdown and repayment)
Any credit facility provided by CII is normally secured with inventory or receivables. Collateral mortgage is normally not required. Credit without security, i.e. unsecured loans could be extended in select cases, depending on the credit rating of the borrower (investment grade) or based on the specific context. Non-investment grade borrowers would normally require to offer security in the form of charge over current assets such as receivables and inventory.
Loan quantum could range from INR 10 to 150 million.
For on-lending and building a loan portfolio in case of financial institutions, and to meet capital expenditure or permanent working capital requirements in case of SMEs. A term loan provides funds up-front, repayable over time, enabling businesses to grow faster than if they rely solely on internal accruals.
Disbursement: Disbursement can be in single or multiple tranches.
Repayment: Interest to be paid monthly, while principal instalment can be as per cash flows of the business, monthly or bullet repayment or anything in between.
Line of Credit
A line of credit could range from INR 5 to 50 million.
A Line of Credit is used to meet short term increase in working capital either due to sudden increase in orders or due to seasonal nature of business (example agribusinesses). The main feature of this product is that within the sanctioned credit limit, drawn-down and repayment can be made multiple times. Typically, the draw-downs are based on submission of Invoices or Purchase Orders (PO).
Purchase Order Assessment: POs not more than 2 months old from the date of receipt to us are accepted. Funding is to a maximum of 80% of PO value.
Disbursement: Any amount starting at a minimum of INR 3 million at a time can be drawn-down, within the overall approved limit.
Repayments: Interest is to be paid monthly and principal Instalment at the end of 2-6 months, depending upon the working capital cycle, which is pre-decided. Each draw-down has to be repaid within that period. Typically, no prepayment penalty is charged for repayment before the expected repayment date.
Other financing products:
The loan size varies between INR 10 and 100 million.
Given that equity raises result in dilution of the share of existing shareholders, including the promoters, an alternate funding model is a mix of equity and debt in place of pure equity. Venture debt can be raised in such situations.
The disbursement is typically made along with or immediately after an equity raise, and therefore, venture debt conversations are best had alongwith an equity raise conversation.
The loan size varies between INR 5 and 40 million.
Quite often, a company may require to purchase goods by making up-front payment to a vendor, either because he does not offer credit or is ready to offer a significant discount if up-front payment is made. Vendor financing loan works when the discount offered is more than the cost of the loan.