Unsecured small business loans are considered as one of the safest ways to raise short-term finance for meeting the working capital requirements or urgent funding needs of a business. The safety feature is attributable to the fact that these unsecured small business loans do not require any collateral or security in the form of assets of a business. Most small businesses do not have adequate assets to offer as collateral. The elimination of the need for collateral makes it possible for such businesses to raise loans.
Recent years have witnessed the launch of new-age lenders and the introduction of products that have revolutionized unsecured business loans in India. This is not merely via the easy access to funds, but also offering customized solutions for different businesses and tying the repayments to the accounts receivables or inflows from credit card sales of a business.
Ensure uninterrupted business operations
Often small and medium enterprises (SMEs) need funds for their daily operations to ensure the smooth functioning of their business. Funds may be required to purchase raw materials, pay wages and salaries, clear utility bills and meet unexpected expenses. SMEs may also need immediate funds to grab a business opportunity or take advantage of a seasonal upswing in the demand for their products. These funds are required before a business services its customers and raises invoices. The lack of availability of funds at this time can threaten the very survival of a business and, at the least, could throttle any growth opportunities.
This is when unsecured small business loans come to the rescue. SMEs are able to sustain their businesses with the help of such funding options.
The main reason behind the increasing popularity of unsecured small business loans in India is their easy availability. Only a few years back, businesses had no other option but to approach banks and other traditional financial institutions to raise funds. Even if a business could satisfy the stringent eligibility criteria for loans, it could take months before the funds were disbursed.
With the emergence of FinTech lenders, it has become possible to secure funds in a matter of days. Such lenders use the latest technology to assist the loan approval process, making the sanctioning and disbursal of loans swift and easy. Such loans are safe because they are easily available and ideal for preventing any disruption to operations.
Protect Your Bottom-Line
Most SMEs are unable to meet the eligibility criteria put forth by traditional financial institutions. In fact, it was impractical to approach banks for urgent liquidity needs, given their long-drawn approval processes. Thus, most businesses were left to the mercy of unorganized money lenders who would charge steep interest rates.
FinTech lenders now offer loans that are easy to access, with faster approval processes and more affordable interest rates. With these solutions in place, businesses can protect their bottom-line by raising unsecured business loans without paying exorbitant rates of interest charged by unorganized moneylenders.
Flexible Repayment Options
Unsecured business loans come with flexible repayment options. The term of the loan could range from six months to three years. The repayments can be on a daily, weekly, fortnightly or monthly basis. Some products like Capital Float’s Online Seller Finance and Merchant Cash Advances link repayment to the operating cycle or receivables and credit card sales of the business. This flexibility puts a business in a better position to make repayments. Since the repayment is a specific percentage of the monthly sales, there is no added pressure on the borrower to repay the loan. This also ensures that the borrower is not stressed about repayments when business is slow.
No Restriction on Use of Funds
When a business takes an unsecured short-term loan, the lender does not impose any restriction on how the business deploys these funds, unlike in the case of secured loans. The borrower can use the loan amount to fund daily operations, purchase raw materials, pay utility bills or market its business.
Flexible Loan Size
In the case of a secured loan, the amount that a business can borrow is determined by the value of the collateral. In the case of unsecured business loans, the amount can be determined by the need for funds. With Capital Float’s Merchant Cash Advances, a business can borrow any amount ranging between ₹1 lakh and ₹1 crore. Although the amount is correlated to the credit/debit card payments to a business, the loan can be as high as 200% of the monthly card settlement.
Defaulting on Repayment of Unsecured Small Business Loans
Unlike in the case of secured loans, a lender cannot seize any assets of the business in case of a nonpayment of the loan amount. However, defaulting on a loan can have serious consequences. A business may not be able to take another loan once it has defaulted in repaying one. The failure to meet repayment obligations could end in a lawsuit.
Prior to taking such serious measures; however, lenders would offer options to make it easier for a business to repay the loan. If a business is unable to repay a loan as per the scheduled timeline, the best thing to do is to contact the lender to explain the reasons for default and to set a revised repayment plan.
In fact, most experts advise SMEs to build a long-term relationship with the lender. Unsecured loans can be taken on a recurring basis, making money available exactly when a business needs it and planning repayments when the business is expecting an inflow of funds from customers.
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Having a dedicated business bank account is important for business owners to effectively manage and utilise their working capital. With a simple segregation between personal and professional funds, the day-to-day transactions will be easier to track and document. It is also essential for compliance in IT returns filing and will help you to identify the correct deductions for your tax savings.
In India, small and medium enterprises (SMEs) generally use current accounts to manage their funds and to get a working capital loan. While no interest is received from these accounts, lately some banks in the private sector have started offering interest to attract more buyers for opening accounts with them. As a part of their services, the banks also provide working capital finance to their eligible customers with current accounts. However, these grants are sanctioned upon the pledging of an asset as collateral. Industrial, commercial or residential property or liquid securities have to be pledged while borrowing funds for business from a public or private sector bank.
With the availability of working capital financing solutions from digitally operating NBFCs – known as FinTech (technology) companies ¬– entrepreneurs can now have their dedicated business bank account and procure loans without pledging any collateral. These online platforms provide financial the benefits of less stringent terms and flexible repayments.
The question then is – how to choose the right bank account for business transactions? Most banks have now customised their current accounts into different sub-categories, and an enterprise can choose one based on its annual turnover and particular needs. The key expectations from such an account are:
Salary solutions for employees: You need to pay your employees on time every month, and may have to remit their remuneration through dedicated salary accounts or crossed cheques. The business bank account must make the execution of these processes simpler.
Digital banking services: In an era where all personal banking transactions can be done online, current accounts must also come with a host of online banking services. Your account must give you the flexibility of transferring funds anytime, anywhere, and of making regular payments on working capital demand loan that you may have procured from another financial institution. In addition to net banking, services such as phone banking, mobile banking and quick reverts on SMS-based queries are looked forward to as well. Mobile instant alerts on transactions must be provided by banks in the digital age.
Cheques payable at par: Your business bank account should offer the provision of personalised cheques payable at par across India. This conventional facility is good for business owners who prefer to use cheques over online banking for making payments to their employees, vendors, suppliers and to the companies that issued working capital finance to them.
Competitive foreign exchange rates: If your business operations involve buying from or selling to other countries, you will need seamless foreign exchange transactions. Choose your current account from a bank that offers competitive rates on foreign exchange rates routed through them.
Zero balance account: No business wishes to reach a point where they have zero balance in their bank account. Nevertheless, there can be tough times in the market and you may experience some strain on your finances. For emergencies, your business current account should allow you to reach zero balance even if it is for a temporary period. There should be no ‘penalty charges’ on such accounts. You can always update the balance with relentless focus and consistent efforts while working on your business objectives.
Where a zero balance account is not possible, the minimum monthly average balance (MAB) must be made affordable for SMEs. Alternatively, the penalty for non-maintenance of minimum balance must not be very high. Do not hesitate to compare business accounts of different banks on this basis. Your working capital finance provider may also be able to guide you here.
Interest rate: We had mentioned earlier that current accounts do not usually involve interest earnings. This had been the norm in the banking industry for decades. However, with an increasing competition between public and private sector banks, things have changed. All financial institutions are trying to enhance their brand image in the industry by offering products that are more attractive to prospective customers. In this race, they have started delivering interest on idle money in business accounts while also giving the flexibility of accessing the funds anytime. With interest earnings on your account, you can also speed up the payments on your working capital loan procured from any source.
Businesses do have good reasons for applying for a separate banking account, and it also proves their creditworthiness to sources of working capital loan in India. Non-banking financial companies (NBFCs) and FinTech lenders can directly disburse funds into a current account.
The documents needed to open such accounts vary from bank to bank and depend on the type of business. Those investing in their start-ups are often asked to submit copies of their latest IT returns, PAN Card and ID and address proofs such as Aadhar Card or Passport copy. Partnerships, Limited Companies, Trusts, Associations and other corporations that involve more people and hire employees need extra documentation, which among other things must also include the registration deed for the business.
Further, check the fee and applicable charges on these business accounts. There may be charges for remittance facility from other banks, for the maintenance of debit cards and duplicate or ad hoc account statements.
As a FinTech lender, Capital Float disburses loans into your accounts in a duration as short as 3 days, helping you to keep going further for the consistent success of your venture. We have an array of loan products to help you work on the seamless growth of a project that you have enthusiastically nurtured.
Oct 24, 2018
“It takes money to make money.” We often hear this adage in the business world, and it does hold true. Even so, maintaining adequate cash reserves to meet the fixed and variable costs can be a real challenge, especially for start-ups and small businesses.
Most of the small and medium enterprises (SMEs) initiate operations with a low level of funds while simultaneously facing competition from established players and dealing with the challenges of seasonal cycles. Consequently, they may not be able to generate the estimated sales volumes.
Even if a venture is performing as per expectations, it may need to make additional investments to hire qualified experts, adopt new technologies and maintain larger stocks of materials/inventory for sustained progress. With experience, SMEs know that a cash cushion is necessary for both survival and growth. An Unsecured Business loan for Traders best offers this advantage.
There are multiple sources of an SME loan for small enterprises, and sincere business borrowers approach a financial institution only when they are confident about and can prove their venture’s ability to pay back in time. Nevertheless, a high number of applications get rejected because these borrowers are unable to pledge financial assets as collateral against a loan.
Not everyone owns huge property. New entrepreneurs often start their operations from rented premises and may not have any significant assets to hypothecate. A secured business loan for traders can also be denied if the lending institution does not deem a particular asset to be valuable enough for the funding.
What comes as a relief for business owners is the fact that an unsecured SME/MSME loan is a prominent option for finance, and it comes at significantly more customized terms.
As the digital revolution continues to transform the lending industry, the possibilities of quick funding have only increased for small businesses, and there is an array of SME loan products available to them. A digitally operating FinTech company offers term loans that can be used to buy new premises (shop/showroom/office) or expand the business to new locations. Entrepreneurs can also apply for a working capital loan to continually fuel operations in the low phases of the business cycle.
Moreover, FinTechs offer loan to buy stocks. This facility is particularly helpful for customer-facing ventures such as retail and restaurants.
What is common to all these FinTech credit products is that they are unsecured loans – they can be taken on short notice and without pledging any asset as collateral.
How to apply for a business loan for traders ?
A majority of new-age business managers now understand the lending models of FinTech companies. Those who are still unaware of the concept can always do a quick online search to comprehend it. In brief, a FinTech lending company typically is a non-banking financial company (NBFC) that uses digital technology to make financial solutions quicker to access.
A business loan for traders is highly sought by small enterprises. Any Pvt Ltd (private limited company), LLP (limited liability partnership firm) or Sole Prop (sole proprietary company) can approach FinTech lenders for unsecured business loans.
While the exact eligibility criterion differs as per the kind of SME loan applied for, the principal requirement is the operational business history of at least one year. Pursuant to the rules of the money market, this stipulation is necessary to show that the business owners are genuine and have been running the company for some time.
To qualify for the requested amount, a business with active operations should also show its commitment towards tax compliance. It should also have a precise idea of its loan requirements. This not only helps the borrowing organisation to increase its chances of getting an approval for the credit, but it also makes it convenient to choose the right type and term of the loan.
Anyone applying for a business loan for traders should understand the cost of the loan upfront. When a FinTech is approached for such an investment, this cost includes the interest rate and a nominal processing fee that is usually less than 2% of the borrowed amount.
The application process is entirely digital, and that makes it shorter than the overwhelming procedures of visiting a traditional lender, printing multiple copies of documents and then staying in suspense for weeks to get the required amount.
Applying for a loan from a digital platform takes less than 10 minutes, and the application formats are available on the secure website of the FinTech lender. The application form usually comprises of some basic questions to evaluate the eligibility of the business for a loan. These questions include years in operation, average annual/monthly revenue, tax payments and past credit history, if any. Digital uploads of the relevant documents support the information.
There is no waiting game when a business applies for a loan from a FinTech lending company. As soon as the application is submitted, its evaluation by customised algorithms begins, and it may then be sent for a quick manual review.
FinTechs notify the borrowers of the decision on the application on the same day. If the decision results in an approval, they disburse the total approved amount in the next 2-3 working days. The amount is credited directly to the business bank account, and the SME can withdraw the necessary sums to fund the operations/stock purchases as required.
How to pay back the borrowed amount ?
Most loans are paid through equated monthly instalments (EMIs), and the same method can be used to repay a FinTech SME loan. To make this process more convenient for their borrowers, some companies give them the flexibility to vary the instalment amount when required. As soon as the business records reflect better revenues than the estimations, it can pay off the loan in full and save the trouble of managing EMIs for the complete schedule. The prepayment penalty charged by a FinTech is still less than that of banks and traditional NBFCs.
Is your business facing a cash crunch? Do you want to move to the next level of growth or invest funds to start operations at a new location? Capital Float is a friendly FinTech lender that is trusted by businesses in multiple industries. From term loans and working capital loans to funds for specific domains such as medical practice and online selling, we provide an array of credit products tailored to the needs of business owners and self-employed professionals.
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To know all about the loan that you seek and the amount that you can borrow, feel free to call us at 1860 419 0999.
Oct 24, 2018
The growth of the SME (small and medium enterprises) segment, which contributed nearly 40% of India’s exports, has been restricted by the lack of access to timely finance. Only 4% of 57.7 million small business units in the country have access to formalized finance, leaving many to rely on informal lenders, who charge exorbitant interest rates. Requirements like collateral and detailed documentation as well as the long processing and disbursement time of loans deter SMEs from approaching traditional financial institutions. Thus continues the huge gap between the need for funds by SMEs and the amount of funds actually approved as loans.
This severe shortfall needed to be addressed, especially given the importance of SMEs to India’s economy. This is where FinTech companies like Capital Float have risen to the occasion, offering new business loans that are aligned to address specific needs of the SME sector. While cutting-edge technology is being deployed to make innovative financial products available to smaller businesses, SMEs must be aware of the available finance options to take make an informed decision.
SMEs make some common mistakes when applying for secured and unsecured loans. As a result of these mistakes, their loan applications may get rejected. Here are some tips for small businesses to avoid rejection of their business loan applications.
Banks and other lending institutions would require certain documents to verify the claims made by a business. The decision to sanction a loan is taken by the lender after evaluating the prospects of a business, its ability to repay the loan amount and its previous credit record. This is done by checking various documents certifying the presence and existence of a business, its financial statements, taxes paid by it and other documents that indicate the financial standing of the business and the business owner(s). To ensure speedy approval of its loan application, a business must organize its documents and submit these in an orderly manner to the lending firm.
Any kind of delay in submitting the desired documents may be viewed negatively by the lender and could even derail the whole process. So, every business seeking a short term loan needs to be organized about its documentation. All the papers should be ready for submission when applying online for a loan. Your swiftness in providing the necessary information along with requisite documents can speed up the approval process.
Be Mindful of Your Credit Profile
The credit profile of the business owner or owners plays a key role in the ability of the SME to secure a business loan. Ensuring a good credit profile is not difficult. This is possible by ensuring that all your credit card and bill payments are made on time. The timely repayment of all due amounts including the ones relating to any existing loans helps improve the credit score.
Often business owners ignore their credit score thinking that it would not impact their ability to secure a loan for their business. They fail to understand the significant negative impact this can have on their business. It is important for business owners to regularly check their credit scores and take the necessary steps to improve them. Such efforts can ease the process of securing finance for the business in the future. In some cases, the credit scores do not even reflect the true situation. Regular monitoring can help business owners rectify the errors in the scores and boost their chances of getting loans on time.
Have A Firm Business Plan
Seeking loans without any kind of business plan may result in the loan application being rejected. A business plan is a reflection of the goals, the purpose of a business and ways to achieve them. It shows how a business intends to operate and how much funds are needed and at what time. A clear business plan not only helps a small business to ease the process of loan application, but also to determine the specific amount of funds required. This in turn enables the business to apply for a business loan well in advance besides providing the lender clarity into the purpose for which the loan is sought.
Thus, a well laid out business plan helps a business provide answers to questions like:
- How much loan is required and for what purpose?
- How quickly are the funds required and for what duration?
- What is the current financial standing of the business and when will the business be able to repay the borrowed amount?
- Does the business need secured or unsecured loans?
With FinTech lenders like Capital Float offering an array of innovative products, small businesses also need clarity to enable them to choose the loan that is most appropriate for them. A business plan would also help with this. In the absence of a business plan, the screening process may take longer and the chances of rejection of the loan application are also higher.
A business seeking a loan should not borrow from the first lender it comes across. Instead, it’s advisable to do thorough research and compare the loan terms offered.
Capital Float helps small businesses seeking loans to identify the right type of loan for their working capital needs, besides offering multiple repayment options. The use of advanced algorithms helps to underwrite businesses uniquely, check the repayment ability in absence of credit scores and develop customized lending solutions to suit the individual requirements of potential borrowers.
Oct 24, 2018