Dealership Case Study

Source of financing funds for dealership

In order to run their business, fund flow is an important concern for the dealership .Dealers have to strive for arrangement of the funds .Funds need to be raised so that money is available as and when required for meeting the above mentioned expenditures.

The 3 main source of finance for dealership are:-

 Channel funding

 Cash credit

 Self-financing

1. Self-Financing:

Self-Financing is the financing of business activities when the Dealership uses personal funds to back the working of the business. Since Dealerships are mainly a Sole proprietorship or Partnership types of business, the owners inculcate their own funds into the business for many good advantages that accrue to them over a period

In channel funding, the dealer approaches the bank indirectly through TATA Motors, and TATA Motors, due to its repute and understanding with the banks arranges for their finance with the respective banks. In this way, the Dealerships easily discover a source of finance. But the issue with channel funding is that it is a more stiff type of financing, i.e., the funds arranged through Channel Funding cannot be used in personal issues and thus the flexibility is lost unlike in case of cash credits. The main features of Channel Funding are:

 The amount of capital available in case of Channel Funding is comparatively greater and is less limiting.

 The Rotation Period of the money is often comparatively larger in case of Chanel Funding.

 The risk in Channel Funding is actually assumed by the bank which is traded off by the interest payments and on the dealership side, the risk of capital is limited to the interest payment and the repayment of the principal capital back to the banks.

 Credit history is a very important factor which plays role in case of channel funding. It is because banks usually abstain from giving funds to those dealers who have very bad credit worthiness in the market. In certain cases, TATA Motors pleads the case of the Dealer before the Bankers and somehow get the funds allocated for the dealer.

 Some sort of collateral is always demanded by the banks, against the