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External commercial borrowing is a process companies within India can use to access foreign sources of funding. It is necessary to follow some specific protocols in the application process, and companies may only use the money for certain specified purposes. Companies can raise their own funds, or turn to an agent to assist them with locating financial opportunities. The government regulates external commercial borrowing in the interest of maintaining economic health and welfare.
Foreign funds can be provided in the form of loans, credit, bonds, and other financial instruments. A company in need of external commercial borrowing may need a large amount of money or may have an interest in expanding operations. It is not legal to use the money in speculative activities like investing in the stock market, and the company must be able to show how it will apply the funds when it seeks financial assistance.
Buyers and suppliers alike can use external commercial borrowing to expand their operations and provide more services to customers. For buyers, the external funding may provide an opportunity to sell more goods and services to the public. This will allow it to grow, and it can repay the borrowed funds through its enlarged business activities. Suppliers may also rely on external funding to increase production and attract more potential customers.
Companies with an interest in external commercial borrowing can meet with financial advisers to get information about the available opportunities and how to apply. In a growth economy, it can be easy to locate foreign investors with an interest in Indian companies, but it is important to compare sources of funding. A company may be able to negotiate a better deal if it investigates its options thoroughly and is willing to bargain. Financial institutions can provide assistance with locating funds that may not be available through other sources.
The rate of external commercial borrowing is a topic of interest to the government. It monitors lending and borrowing and provides reports, usually available to members of the public. These reports can be useful for determining the overall direction of the economy, as well as researching specific companies or sectors. A sector where borrowing is active is likely to be in a state of growth, for example, and could be a sound investment. In sectors where borrowing is on the decline or defaults are high, investors may be less interested, as the risks would be much higher.
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