RBI Governor Talks SME, Receivables Finance

Since his appointment last year, Raghuram Rajan has been making the headlines for all the right reasons. But beyond his interventions in currency markets and the macroeconomy, a steady stream of pronouncements from the RBI Governor on potential priority sector reforms should give the SME sector in India much to cheer about.

In his inaugural address, Rajan specifically highlighted the importance of SME finance in spurring growth across the broader economy:

As the central bank of a developing country, we have additional tools to generate growth – we can accelerate financial development and inclusion. Rural areas, especially our villages, as well as small and medium industries across the country, have been important engines of growth even as large company growth has slowed

He went on to endorse receivables financing as a key policy tool to unlock timely credit to SMEs and address the massive working capital gap in the sector today:

For small and medium firms, we intend to facilitate Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned so that MSMEs are paid promptly. This was a proposal in the report of my Committee on Financial Sector reforms in 2008, and I intend to see it carried out.

On a cautionary note, it is worth noting that this is not the first formal RBI pronouncement in recent times advocating factoring or receivables-based financing as a financial inclusion tool for the SME sector. In fact, the RBI has signaled a steady commitment in recent times to SME credit growth, but its policy directives have frequently not translated into real priorities for public and private sector banks operating on the ground.

In 2013, IFMR reported that 16 out of 26 public sector banks had failed to meet their priority-sector lending (PSL) targets. Half the private sector banks also did not reach their targets, bringing the total shortfall in priority-sector lending in 2013 to USD 28 billion.

Despite these hiccups, Mr. Rajan’s strong words and visible proactivity since coming into office suggest that the RBI may embarking on a fresh chapter of promoting innovation to further financial inclusion for priority sectors. If recent sentiment across capital markets is any indication to go by, the consensus is that this Governor means business. This is good news for innovators trying to bring new and disruptive business models to sectors that have traditionally been starved for credit. But for entrepreneurs in these sectors, it could mean something more transformative – unprecedented access to an entirely new set of institutions, tools, and financial products more finely attuned to serving their business requirements and financing needs.

(Image credit: Business Today Aug 12, 2013)

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When to Apply for Business Loan Online – 5 Scenarios

Being proactive never hurt anyone. This is especially true when it comes to running businesses. A successful enterprise needs a steady infusion of finances, and waiting till the very end could prove to be expensive, particularly in the current competitive scenario. Challenges will never cease to exist. The same holds true for business opportunities. Timely action coupled with advance planning for business development sets the leaders apart in a crowd.

How to get a business loan is a question fraught with ifs and buts. Capital Float, the leading alternative lending companies in the online space, assists in overcoming the unique credit needs of a variety of small businesses, thus providing an easy answer to the question.

Here are five scenarios wherein applying for a small business loans online becomes necessary.

1. When expansion is imminent

Small business loans are no longer viewed as a liability. If debt can enable you to seize a lucrative business opportunity, why not utilise it? Online business finances are geared to function according to individual needs, thus empowering a variety of small and medium business enterprises (SMEs). A flourishing business will sooner or later require physically expansion. This doesn’t necessarily mean that it has the cash on hand to make such a move.

Often, traditional banks either work too slow or fail to understand your business goals. Capital Float’s products are the best fit in such situations, and are tailored to fulfil unique credit requirements. Thus, small business goals such as expansion or renovation plans become achievable and affordable through alternative lending means.

Capital Float bridges the credit gap and equips a business in more ways than one by offering flexible access to low-cost capital. These include exploring new markets, a new marketing strategy or, realising expansion plans.

2.Purchase of business tools

Every business employs different tools. While one may require steel cutters, the other may need pizza ovens. Computers may be crucial to one business and curling irons to another. The point being that no business can do without a certain kind of specific equipment. An enterprise may either buy or lease it out.

It makes perfect financial sense to get business finance for purchasing indispensable equipment. Apart from getting a tax-cut, an enterprise can use these tools for the rest of their economic life and even sell it at a reasonable price later, if need be

The problem of how to get a business loan for buying equipment is made easy and convenient by Capital Float. Irrespective of a company’s cost-benefit analysis vis-à-vis buying or leasing business equipment, our customised financial products take care of all your liquidity needs.

3.Replenishing inventory

Sustaining a business in the current digital ecosystem requires continuous supply of inventory. This is especially true for companies working in the online space. Expanding to new marketplaces and staying ahead of the competition entails having enough inventory to meet customer demands. Falling short may jeopardise the reputation and prospects of B2B or B2C companies.

A business can conveniently avoid running into such a situation with Capital Float’s loan products. Enabling several types of small and medium businesses to replenish their inventory ahead of a season, these loan offerings take care of your seasonal inventory purchases. They involve short-term loans which companies normally pay off from profits once the season is over.

4.Boost working capital

Costs pile up long before the first sign of profits. Businesses invariably require working capital or daily cash for taking care of operations, which may range from repair of equipment to payment of salaries. Till the time a fledgling company can earn enough to cover its working capital needs, business loans come in extremely handy. Capital Float caters to a wide range of companies that require small business loans for running daily operations. Easily available without the hassle of lengthy paperwork and excruciatingly slow disbursement times, such loan offerings ensure smooth working of an enterprise. Easy access to timely credit is critical. This is especially true for startups, which require a certain amount of hand-holding initially. Working capital, which can be easily sought through a small business loan, ensures a comparatively smoother running of business.

Easy access to timely credit is critical. This is especially true for startups, which require a certain amount of hand-holding initially. Working capital, which can be easily sought through a small business loan, ensures a comparatively smoother running of business.

This is where Capital Float’s many different loan products make a difference. Small business loans empower entrepreneurs in several ways. These include helping to seize the next business opportunity, taking care of suppliers, using available funds as petty cash, improving profit margins, etc.

5.Change in the organizational life cycle

Every new business starts out as small, which is essentially a time to test the water. With time, business owners get to know the market and their customers better, and inevitably think of taking the bold step of expansion—either into new product/service categories or in terms of scale. This is when they require a business loan.

A smart way to go about this is to start with a small business loan and pay it off on time. This enables a business to build a healthy credit score, which can be advantageous when applying for large-scale financing for business expansion. “How to get a small business loan” is a question easily answered by online FinTech lenders like Capital Float. Build your business credit the easy way through our collateral-free short-term loans,

“How to get a small business loan” is a question easily answered by online FinTech lenders like Capital Float. Build your business credit the easy way through our collateral-free short-term loans, customized to specific needs. Thereafter, work your way up to a large-scale loan with business finance.

Running a profitable company in today’s globally competitive environment requires meticulous planning and timely cash inflows. With the use of big data and analytics, Capital Float can speed up the loan approval and disbursal process, empowering your business with timely credit, enabling you to focus on larger issues such as business growth and development.

Oct 24, 2018

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Importance of Working Capital for Businesses

What is Working Capital?

Working capital is the difference between the total number of assets and the total number of liabilities in a company. This amount is spent on executing day-to-day operations in a business. As a result, it is used as an index to measure the health of a company. Enterprises with high working capital are often strong businesses.

What are the Uses of Working Capital?

In most situations, working capital is used to run operations. A well-managed business will also use it’s working capital to achieve growth. For instance, an online seller would spend to add a new type of product to his portfolio. A retailer may liquidate funds to increase his store size by adding a new section to his outlet.
Other uses of working capital include:
• Equipment and inventory purchases
• Hiring, salary payments and employee training
• Unforeseen expenses

What are the Outcomes of Low Working Capital?
Responsible financial management may help companies secure higher levels of working capital. On the contrary, poor management of capital could result in the following issues:

• Bankruptcy risk: In the case of negative working capital, SMEs use money received from creditors to finance business operations. Businesses run the risk of bankruptcy due to the lack of sufficient income to counterbalance the expenditure.

• Lack of investment opportunities: Investors are less likely to consider companies which regularly have low or negative working capital. This demonstrates that the company is not being run effectively.

• Missed growth opportunities: With large amounts of positive working capital, businesses will have money to spend on pursuing growth. With negative or low working capital, businesses may find it difficult to capitalize on investment opportunities. Low working capital could have stifling effects on the ambitions of any businessman.

• Trade discounts: Many suppliers will offer substantial discounts if they are paid on time. Low or negative working capital can make it difficult to meet payment obligations which, effectively, increases the cost of inventory.

What are the Ways of Accessing Working Capital Finance with Capital Float?

At Capital Float, we offer a wide range of financing options for small and medium scale businesses. By providing quick and easier access to funds and with flexible repayment options, we can give businesses the right financial support to help them achieve their next milestone.

We offer Online Seller Finance to e-commerce sellers who operate on online marketplaces. Through a simple online process, the seller can apply for a loan and receive funds in three days. The loan tenure ranges between 90-180 days and is repaid on a biweekly basis. This loan is ideal for sellers who are looking at expanding into other marketplaces, increasing their product portfolio or purchasing higher volumes of stock.

Term Finance is applicable for traditional businesses that have been operating for three years. The loan tenure varies between six months to three years. Small scale manufacturers, retailers and distributors can use this loan to meet short-term investment requirements and finance inventory purchases.

Invoice Finance helps SMEs convert their invoices into cash, that can be channeled into financing business operations. This loan product has an exclusive feature of one-time bullet repayment mode, which might suit the cash-flow needs of several SMEs.

We also provide Merchant Cash Advance which will interest vendors using point-of-sale machines with consistent card settlements. Merchants can receive working capital finance of up to 150% of their monthly card swipes within three days of the loan application.

Our unique product called ‘Pay Later’ is a rolling credit facility, that enables the borrower to make multiple drawdowns within a predefined credit limit. The borrower pays interest on the utilized amount and not on the entire limit. By repaying the amount utilized, the borrower resets the credit limit, thereby instantly availing the facility in whole. Click here to read more about ‘Pay Later’. You could read about the product features by clicking here.

At Capital Float, we have working capital finance options for SMEs across all segments. Visit our website to know more about all our products. Click here to apply now.

Oct 24, 2018

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Implications of GST on Manufacturing

GST — the unified tax system that is set to revolutionize indirect taxation in India— is finally here. Some of its key proposed advantages are streamlining of tax payments, reduction in tax frauds, and ease of doing business. Here is a look at how these will play out in the manufacturing domain.

Make In India & Manufacturing

The manufacturing sector in India contributes a mere 16% to the overall GDP. However, the potential to make this a high-growth and high-GDP sector is huge. The “Make in India” campaign by Prime Minister Narendra Modi makes this possibility real, by giving impetus to the sector. Furthermore, PwC estimates that India will become the fifth largest manufacturing country in the world by the end of 2020. It would be interesting to know how the Goods and Services Tax or GST impacts this roadmap.

Impact of GST on Manufacturing

GST is one of the key policy changes that will have a direct impact on manufacturing establishments. So far, the existing complex tax structure has been a dampener, resulting in the slow growth of the sector. GST is expected to liberate the sector by unifying tax regimes across states.

Overall, GST is expected to have a positive impact and boost manufacturing.  Here is why:

  • Removal of multiple valuations will create simplification: The old tax regime subjects manufactured goods to excise duty, which is calculated differently in different states. While some states calculate excise duty based on transaction value, others calculate it based on quantity. Most manufactured goods’ excise duty is currently considered on MRP valuation. This creates great confusion in valuation methods. GST will usher in an era of transaction-based valuation, making calculation of tax much simpler for the manufacturer.
  • Entry tax subsummation will reduce cost of production: The subsuming of the entry tax for inter-state transfers is a key reason for reducing cost of goods and services. For example, a supplier of cement from Maharashtra to Karnataka was earlier required to pay entry tax when the supply crossed the interstate border. For Karnataka, the entry tax rate was 5% of the value of the goods. The supplier would pass on this additional cost to the customer, resulting in increase in selling price. With entry tax being subsumed, the supplier need not pay the entry tax rate amount and consequently, not charge the customer this amount either.
  • Improved cash flows: Under the new tax laws, manufacturers can claim input tax credit on input goods, which seems to be a positive sign for cash flow. SMEs are keenly observing the time difference between input tax credit and the credit being available.
  • Single registration process will provide ease of registration: The old regime required manufacturers to register each manufacturing facility separately, even those in the same state. GST will simplify the plant registration process by allowing single registration for all manufacturing entities within the same state. Previously, if a brick manufacturer had factories in Bangalore, Hubli and Dharwad, each unit had to be registered separately. Under GST, all of these factories would be jointly registered under the state of Karnataka. Of course, different state-entities will require separate registrations under GST too.
  • Removal of cascading will lead to lower cost-to-consumer: The old tax regime does not allow manufacturers to claim tax credit on inter-state transaction taxes such as octroi, central sales tax, entry tax etc. This results in cascading of taxes—an extra cost to the manufacturing company. Manufacturers end up passing on these extra costs to the consumer. The unified GST regime will eliminate multiple taxes and thus lower cost of production; this, in turn, will mean lower pricing for the consumer. For example, prior to 1 July 2017, SMEs in manufacturing used to pay Excise Duty, Central State Tax and sometimes VAT too at 12.5%, 2% and 5.5% respectively. With GST in effect, they are required to pay 18% in taxes.
  • Restructuring of supply chain: To align with the GST law, businesses will be required to realign their supply chains. However, this is a blessing in disguise. Till date, most supply chain structuring has been designed around how to manage tax regimes. With a single tax regime, this will change, and supply chain structures will focus on driving business efficiencies. An example is that of warehousing. The old regime demands that warehouse management be based on arbitrage between varying VAT rates across states. This is expected to change to bring in economic efficiencies and more customer-centricity going ahead.

Manufacturers, however, are concerned about the following aspects:

  • Increase in immediate working capital requirements: Branch transfers and depo transfers will be treated as taxable under GST; IGST will be applicable on these transfers. This increases the requirement for immediate working capital. Another reason for increased working capital requirements is that the receipt of advance is taxable as per GST rules. Also, stock transfers are treated as “supply” and hence are taxable under the GST regime.
  • More stringent and elaborate transaction management: GST aims to achieve better tax compliance. To make this possible, manufacturers must work towards streamlining existing transactions; this means additional resources and costs. For example, under GST, credit in respect to an invoice can be taken only up to one year of the invoice date. Also, the provision of reverse charge means that the liability to pay tax falls on the recipient of goods/services instead of the supplier. The payment of reverse charge is dependent on the time of supply (30 days from the date of issue of invoice by the supplier in case of goods and 60 days for services).These changes will require manufacturers to carefully assess and track their supply processes, especially the timelines. This may mean hiring a better skilled compliance workforce, and better systems and software. More legal considerations will also mean more costs.
  • Lack of clarity on local exemptions: Despite GST being proposed as a unifying platform for indirect tax, all the components for manufacturing are not yet clear. One such area is localized area-based exemptions. The old structure provides certain exemptions for certain goods in specific states (for example the North East or hilly states). Under GST, most of these exemptions are likely to be removed, resulting in a negative cost-impact on these manufacturers. Such companies must reassess their financial position in view of such likely changes.

Overall, one can say that the impact of GST on the manufacturing sector is positive. It provides a unique opportunity to streamline business operations to become more compliance and profitability-oriented, rather than tax-oriented. It puts power in the hands of business leaders to bring about positive change and steer their enterprises on a growth path, powered by GST-compliance.

Read more of our content on GST by clicking here.

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Oct 24, 2018