## Bank Advances

### Types of Bank Credit Facilities

Type	Key Feature
Short-Term Loan	Disbursed in one go; repaid in lump sum or installments
Overdraft	Withdraw beyond balance up to a fixed limit
Clean Overdraft	Given without security to trusted/creditworthy parties
Cash Credit	Credit limit used as needed; interest only on amount utilised
Advance Against Goods	Against security of stock (pledge or hypothecation)
Bills Purchased/Discounted	Finance against trade bills; bank holds bill as security

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## Export Finance

### Pre-Shipment Finance (Packing Credit)

Short-term advance to exporters before shipment.

Purpose: Fund purchase, processing, manufacturing, packing, and shipping of export goods.

Eligibility: Exporter must have a confirmed export order OR irrevocable Letter of Credit (LC).

Liquidation: Must be repaid within 180 days from export bill proceeds or remittances.

#### Types of Packing Credit

Type	How it Works
Clean Packing Credit	Given without securing goods; based only on firm order/LC
Against Hypothecation	Goods remain with exporter; bank has a charge; stock statements required
Against Pledge	Goods are physically under bank's control (lock and key)
ECGC Guarantee	Bank obtains credit risk cover from Export Credit Guarantee Corporation
Forward Exchange Contract	Exporter hedges forex risk via forward deal if billed in foreign currency

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### Post-Shipment Finance

Finance given after shipment, until export payment is received.

Form	Explanation
Discounting Export Bills	Finance by discounting bills drawn under confirmed export sale
ECGC Guarantee	Risk cover on non-payment by foreign buyer
Advance Against Bills for Collection	Finance while export bills are in collection process
Advance Against Duty Drawbacks/Subsidies	Finance against receivables from government (tax/duty refunds)

### Other Bank Facilities for Exporters

Letters of Credit for suppliers
Guarantees (advance payment, excise waivers)
Deferred Payment Export Credit
Credit reports on foreign buyers
Trade and economic intelligence

Worked example

### Example 1

An exporter receives a confirmed LC for $1 million from a US buyer. Before manufacturing begins, the exporter approaches its bank for packing credit of ₹50 lakh. This is pre-shipment finance — secured against the LC, and must be liquidated within 180 days.

### Example 2

An exporter ships goods and draws a bill on the overseas buyer for $500,000. Before the buyer pays (in 90 days), the exporter gets immediate funds by discounting the export bill with its bank — this is post-shipment finance.

### Example 3

A company uses Cash Credit for working capital. Its limit is ₹1 crore, but it only uses ₹60 lakh at a time. Interest is charged only on ₹60 lakh — this is more efficient than a term loan where interest accrues on the full sanctioned amount.

⚠️ Common exam mistakes

Confusing pre-shipment and post-shipment finance — pre-shipment is before goods are exported; post-shipment is after shipment until payment is received.
Stating that packing credit can be used for 12 months — the maximum liquidation period is 180 days.
Mixing up Pledge and Hypothecation — in pledge, goods are in the bank's physical possession; in hypothecation, goods remain with the borrower but bank has a charge.
Thinking ECGC guarantee covers interest rate risk — ECGC covers credit risk (non-payment by foreign buyer), not forex or interest rate risk.

Reference:

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Bank Advances and Export Finance – Pre-Shipment & Post-Shipment

Worked example

⚠️ Common exam mistakes