Convenient Supply Chain Financing Creates Resiliency In The System

Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.

Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.

As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.

In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.

While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.

We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.

Prashant Adhurty

Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.

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Coronavirus pandemic has impacted millions of people around the world. The virus has also affected lakhs of people in India, leading to several lockdowns to curtail the transmission of the virus.

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What is a Business Loan? How to Apply for It?

A start-up that takes off well with its business idea gradually strategizes about other plans to cement its growth. However, despite a fair degree of success, these small and medium enterprises (SMEs) can face a shortage of funds to fuel their progress.

The business revenue that helps to pay employees, purchase raw materials, maintain the premises, meet other expenses and even make profits may not be enough to invest in further growth. Fortunately, there are business loans that come to the rescue of enterprising organisations at this time. These are provided by banks, non-banking finance companies (NBFCs) and private money lenders.

This article answers some of the frequently asked questions (FAQs) on unsecured and fast business loans offered by NBFCS with a digital lending model. They are also referred to as FinTech companies and are being increasingly approached by startups who find their lending policies more flexible than those of conventional sources.

What is a business loan?

A business loan is a form of financial support that helps commercial organisations to keep up with their growth plans. It is particularly valuable for micro, small and medium enterprises that start their operations with a low level of funds and may not have a substantial amount of funds to invest in bigger initiatives. These include the purchase of new machinery/equipment, adding more product lines, upgrading product features, starting the business at a new location or any other activity that will improve and develop the enterprise.

Is it really a good idea to take a business loan? Won’t it be an additional burden in books of accounts?

Any loan is a liability in accounts. However, when a business takes credit for productive purposes, it can also afford to pay it back with the revenue generated by intelligently channelizing the funds. When there is an attractive business opportunity, and it merely needs some financial investment, the required funds can materialize in the form of fast business loans offered by a FinTech lending company.

If the business procrastinates, the amount required in investment may increase with time, or the opportunity may completely vanish. It is, therefore, better to borrow the funds from an institutional lender and take advantage of the opportunity when it is available.

Thanks to the flexible repayment policies of FinTech lenders, the debt can be cleared before the scheduled term of the loan.

How to apply for a business loan? Does an MSME need anything, in particular, to apply for these funds?

Applying for a loan at a Fintech lender is a simple process that takes less than 10 minutes. The application is available online and asks for basic information of the and the enterprise in question. An MSME should have been operating in its industry for at least one year to be an eligible borrower.

The details provided in the digital application need to be substantiated with corresponding documents. This stipulation, however, does not require the borrowers to send any printed copies of the papers to the lender’s office. They only need to scan the necessary documents and upload them as PDFs with the application.

What are the documents required for a business loan application?

A FinTech lender typically asks for minimum possible documentation. It simply wants to verify the credentials of the prospective borrower and make sure that the business has been operating in conformity with the tax regulations and statutory laws of the country. Generally, the required paperwork include:

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  • Latest ITR/GST returns
  • Business bank account statements for the last six months to one year

The loans provided by a FinTech company are often tailored based on the amount approved, the term of the loan and the purpose of the loan. At times, borrowers may be required to submit a few additional documents . They can find answers to queries such as ‘how to apply for working capital loan’ or ‘how to apply for machinery loan’ on the company’s website. For more details, they can call the customer service team and get the exact list of documents pertaining to their loan.

How long does it take for a business loan to be approved?

In addition to ‘how to apply for business loan’, a frequently asked question on this subject relates to the time within which the finance is available for use.

It usually takes between 1-6 weeks to get a business loan from private and public sector banks, while it only takes three days when such funding is availed from a Fintech lender. Due to the digitized application and document submission system, it does not take long to review the details and provide a decision on the requested funds. For every approved application, the money is deposited in the business bank account within 2-3 business days.

How much loan can a business get from a FinTech lender?

This depends on the individual requirements and the purpose of the loan. While the range of available credit from a FinTech lender can start from five lakhs and go up to a crore, it is recommended that the borrowers have a near-precise idea of the sum that will help them to fulfil their requirement.

Some businesses apply for only a part of the total required sum and make the remaining investment from their savings. Keeping the loan amount on the lower side is a sound way to avoid paying unnecessary interest. Similarly, borrowing a lower amount may result in the SME falling short of funds at a later stage. SMEs must evaluate their credit needs as closely as possible while applying for a loan.

Nevertheless, FinTech lenders do not turn down requests for ‘big amounts’ once they have verified the earning capacity of a business and are confident that the borrower would not default on repayments.

A FinTech company may also offer an eligibility calculator to help the potential borrowers calculate the maximum amounts they can borrow. Such a calculator takes business earnings, expenses and its operational history into account to compute the borrowable funds. Capital Float understands the anxiety of a business that wonders ‘how to apply for business loan without collateral’? We know that many SMEs are unable to get the loan they deserve due to lack of financial assets to pledge as collateral. This is why we offer only unsecured business loans.

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Your enterprise qualifies for our funding if it has a minimum operational history of one year, has been earning reasonable revenue throughout its tenure, has a sound credit history and is compliant with the laws of the land. To know more about fast business loans and for queries on any specific working capital loan, please call us at 1860 419 0999. You can also meet us in person by scheduling an appointment.

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