The inability to provide collateral has been a major hindrance for small and medium enterprises (SMEs) seeking loans to fund their working capital needs, finance their expansion or take advantage of growth opportunities. Although the government has been taking steps to provide the necessary financing to SMEs, traditional lending institutions offer generic credit products to SMEs. When these financial institutions offer collateral free business loans, they impose stringent eligibility criteria, have long loan approval processes and the requirement of a guarantor to safeguard themselves against default.
Against this backdrop of skepticism, new-age lenders like Capital Float have emerged, using cutting-edge technology and innovative products to ease the loan approval process and support SMEs to repay loans by tying repayments with their receivables. These FinTech companies, which bring together finance and technology, specialize in business loans in India for the SME segment.
Specialized Products from FinTech Lenders
FinTech lenders aim at fulfilling the credit requirements of Indian SMEs by developing innovative and customized loan products and simplifying the process of loan application.
Realizing that the main problem faced by SMEs in securing loans is their inability to provide collateral, Capital Float offers flexible, collateral-free business loans via its online platform. These loans can be used to purchase inventory, optimize cash flows or fund any other expense. Some of these loans are provided against the borrower’s bills receivables or credit card receivables. All of Capital Float’s credit products come with easy and flexible repayment options.
Choosing the Collateral Free Loan that Best Suits Your Business
For any business loan requirement, one needs to assess the amount needed and submit an online application, along with digital copies of relevant documents. These documents may include income tax returns for a period of three years and bank statements for the last six months. The use of advanced software, with highly powerful algorithms, allows Capital Float to process the loan application and transfer the sanctioned amount to the SME in a matter of 3 days.
Small businesses can explore a variety of loan options and choose the one that best suits their business loan requirements. Here are the things one needs to consider:
If your SME has positive monthly cash flows and needs funds for the short term, you can apply for Capital Float’s Term Finance product. One can borrow an amount ranging between ₹1 lakh to ₹1 crore, with the loan period ranging from six months to three years. Term Finance loans are disbursed within three days.
The growing popularity of online shopping has propelled the growth of ecommerce companies offering a variety of products and services. On the other hand, increasing awareness of customers, shrinking lead times and the need to manage inventory effectively have posed new challenges for SMEs. Here’s where the Online Seller Finance product works best. This innovative credit option is a short-term loan provided to e-commerce sellers who are selling their products on online platforms. These companies may be looking to raise funds for purchasing stock, diversifying their operations or taking initiatives to increase the visibility of their products. Partnerships with online marketplaces, like Amazon, PayTM, Snapdeal, Myntra, Shopclues and eBay allow Capital Float to help merchants access fast and flexible working capital funding. The loan amount is decided on the basis of the monthly sales and projected revenues of the borrower. Flexible repayment options and the availability of credit of up to two times the monthly sales of the business are some of the attractive features of Online Seller Finance.
Another attractive short-term collateral free loan option is the Pay Later Finance, which works like a revolving credit facility. A credit capacity is determined, based on the prospects of the business. The total amount is not transferred in one go. The SME has the flexibility to borrow amounts as and when business loan requirements arise. The loan amounts can be repaid over a 30-60-90 day cycle. The repayment restores the sanctioned limit, making more credit available for future requirements. Interest is charged only on the amount drawn and not on the entire credit capacity.
Businesses that receive payments via credit card transactions or point of sale (POS) machines can opt for a special financial product known as Merchant Cash Advance. Partnerships with multiple POS machine vendors such as Pine Labs, Mswipe, ICICI Merchant Services, MRL Posnet and Bijlipay have enabled Capital Float to offer swift and hassle-free business loans in India to SMEs using POS machines at their establishments. This tailor-made financial product offers loan amounts of up to 200% of the borrower’s monthly card settlement. The tenure ranges from six months to a year, and a business can raise as much as ₹1 crore.
SMEs also have the option of using their accounts receivables to raise business loans at attractive rates. With the Supply Chain Finance product, an SME can liquidate its receivables immediately into cash and use the same to fund the execution of the order or the growth and expansion of the business. A company can borrow funds ranging from as low as ₹1 lakh to as high as ₹1 crore. One also has the option to repay the loan in easy instalments or in one go in case funds become available to the business.
For SMEs seeking collateral free business loans with quick approvals and disbursal of funds, Fintech lenders are a viable option. The priority for such lenders is to not only ease the process of application and disbursement, but also help SMEs repay loans easily and continue to have credit available.
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Business owners frequently face working capital challenges. Supplier payments are a constant concern for SMEs. In manufacturing, trading and services, where lead times are significantly high, businessmen often finance operations by resorting to informal channels of credit. Traders who deal with shorter sales cycles tend to miss out on large orders as they are unable to pay their suppliers large sums of money to make bookings.
Capital Float’s Pay Later works exceptionally well in these cases. Pay Later carries a pre- defined credit facility which is unique to each applicant depending on various factors, for instance, industry the applicant operates in, scale of the applicant’s business and some basic financial metrics. You can make multiple drawdowns from the assigned balance and pay interest only on amounts utilized. By repaying the amount used, you reset the balance for further usage, making Pay Later a flexible, rolling loan product.
For example, if you’ve been provided a credit facility of Rs 1 lakh, you can make up to 4 drawdowns of Rs 25,000 each. Upon your first drawdown, you have a balance of Rs 75,000. You will be charged interest on the drawdown (Rs 25,000) and not the entire amount (Rs 1,00,000). By repaying the amount used, your balance will be restored to Rs 1,00,000.
With Capital Float’s convenient mobile app, you can use this zero-collateral loan product from absolutely anywhere. To make payments, all you need to do is take a photograph of the invoice with your mobile phone and upload it using our app. The vendor is paid on your behalf within 24 hours of the upload.
Pay Later is an incredibly fast and paperless access to credit that works along the similar lines of a credit card. The functionality of this product as the name suggests – use the facility now and simply pay later. Following are the salient features of the product:
1. Get credit of up to Rs. 25 Lacs
With Pay Later, you are eligible for credit of up to Rs. 25 Lacs, which ensures that you’re never short of funds.
2. Easy, hassle-free online application procedure
The entire procedure will take just 10 minutes of your time. To get started, you can sign-up on Capital Float using your desktop, laptop, tablet or smartphone. Fill a simple online application form and submit the requested documentation to conclude the process.
3. Get approved in 3 days
Where traditional financial institutions take up to 8-12 weeks, we assess your eligibility and offer you a customized credit amount within 72 hours.
4. Convenient repayment at the end of 30/60/90-day loan term
Pay Later offers three flexible repayment plans that work in accordance to your business cash flows. You can choose to repay loan amounts at the end of 30/60/90 days from the date the loan is utilized. This way, you’re never bogged down by hefty monthly instalments.
5. Pay distributors/suppliers via Capital Float’s convenient mobile app
Make payments with just a few taps on your smartphone via our mobile app that you can download for free from Play Store and App Store. The payment is confirmed instantly, and reaches the vendor’s account in less than 24 hours.
Pay Later is a collateral-free loan product, which means you don’t need to pledge your property or assets to avail the loan. Your credit amount is determined by the potential and profitability of your business.
2. Flexibility in drawdowns:
Pay Later allows you to use a portion of the total amount any time you wish to. For instance, if you have a credit facility of Rs. 10 lakhs, then you can utilise the full amount or a fraction of it at any given time, depending upon your requirement. The user-friendly mobile app efficiently keeps track of your balance, so that you can manage repayments accordingly. You can also draw amounts as low as 25,000 rupees, hence making this product extremely convenient to use.
3. Interest applicable only upon drawdown
You’re required to pay interest only for the amount you’ve utilised and not on the entire credit amount assigned to you.
Click here to read about the features and benefits in more detail.
Eligibility and Documents
The eligibility criteria for Pay Later is extremely simple. All you need is a small list of documents at the time of application:
- Applicant’s business to have at least 2 years of vintage
- Applicant must purchase from a reputed supplier
- Applicant must have 3 months of transaction data with the supplier
- Audited financials for the last 2 years
- VAT returns and bank documents for the last 6 months
- KYC documents of the applicant as well as the organisation
How to Apply
Applying for credit via Pay Later involves a simple four-step procedure. As long as you have a computer or smartphone and a good internet connection, you can apply from anywhere. Here are the steps involved:
- Apply & get empaneled
Sign up on Capital Float’s website to kick-start the procedure. Fill out the form with your personal and professional details, and click on submit.
2. Upload the necessary documents
The next step involves uploading the requested documents. This includes business vintage of two years along with some basic KYC documents.
3. Receive instant approval
Receive approval on your application within hours. In less than 3 days from the time of application, your credit facility will be set up for your use.
4. Credit facility ready for use
Once your credit amount is determined, you can start using Capital Float’s mobile app to create tranches by uploading invoices and making vendor payments.
Fees and Charges
At Capital Float, we conduct business in the most transparent manner possible. Therefore, you’re only obligated to pay a processing fee of up to 2% for the loan. Rest assured, there are no hidden or pre-closure charges that pop-up during or after your application procedure.
Oct 24, 2018
The Goods and Services Tax (GST) is proposed to be implemented from July 01, 2017, and will effectively change the face of indirect taxation in India. Some of the key benefits expected include a simpler and more transparent tax system that will reduce tax evasion and boost revenues; more competitive manufacturing, especially in the MSME sector, thanks to reduction in tax cascading; and improved GDP due to a wider coverage of goods and services. This attempt towards bringing to life a “One Nation, One Tax” legislation will have far-reaching implications on every citizen, and will impact business finance and personal finances too. This is especially true for SMEs, as they will see a direct impact on their working capital. It is therefore prudent to plan for this crucial event.
Here is all you need to know about the GST rollout.
What is GST
GST is a unified system for indirect taxation, leading to the establishment of a new four-tier indirect tax structure that replaces the existing indirect tax regime. Essentially, four new indirect tax slabs will come into effect, i.e., goods and services will hereafter be taxed according to the slabs of 5%, 12%, 18% or 28%.
|Rate of Indirect Tax||Goods/ Service|
|Exempt||Goods of mass consumption such as grains and milk|
|5%||Essential items such as edible oil, tea, coffee, insulin, incense sticks, etc. that are exempt from excise duty and are charged at a VAT of 5%. Certain processed foods like sauces, pickles, and preserves as well.|
|12%||Goods currently taxed at 9% to 15% such as processed food and computers|
|18%||Goods currently taxed between 15% and 21% (soaps, smartphones, utility electronic items and, industrial inputs).|
|28%||Luxury goods such as SUVs, select consumables (aerated drinks, tobacco), white goods (AC, fridge) and goods that fall under the current tax bracket of 30% to 31%. Luxury and select consumables will attract an additional cess.|
These four structural slabs allow a provision to charge a maximum of 40% GST rate, i.e., a combination of 20% Central GST and 20% state GST.
Services will be taxed at a standard or default tax rate of 18%. Only five luxury services, i.e., five-star hotels, movie tickets, racing and betting (racing and casinos) will fall in the 28% tax bucket. E-commerce companies will be subject to 1% tax collected at source.
The build-up to the GST: A track of timelines
The story began with the Central Government releasing the Revised Model GST Law for public purview on November 26, 2016, and the setting up of the GST Council to discuss and approve the Bill. Thereafter, the Council met on subsequent occasions to discuss and approve the section terms, and targeted a rollout date of April 01, 2017. The latest is a meeting held on 11th June, wherein the tax rates for 66 items have been reduced. A rollout date of July 01, 2017 has now been set. As a result, four legal bills have been presented and passed for different categories:
- Central GST Bill (CGST): For supply of goods and services by the Central Government within the boundaries of a state.
- Integrated GST Bill (IGST): For supply of goods and services between different states, carried out by the Central Government.
- Union Territory GST Bill (UGST): For supply of goods and services in the Union Territories.
- The Compensation Bill: To govern the provision of compensation for revenue losses brought on by GST implementation, over the next five years from implementation.
All four bills have been passed in the Lok Sabha and subsequently the Rajya Sabha after a series of changes at the Centre. These bills have received approvals from 16 state assemblies with Delhi being the most recent.
Rules and Acts under the GST
The Government is also in the process of driving the GST Council to put together rules and acts for GST implementation. Following are the GST rules passed till date: Composition Rules, Valuation Rules, Transition Rules, Input Tax Credit Rules, Invoice Rules, Payment Rules, Refund Rules, Registration Rules and Return Rules.
Proposed outcomes of the GST for the Government
According to Finance Minister Arun Jaitley, India will evolve to be a more tax-compliant society thanks to the GST. He also clarified that the GST would not lead to inflation, addressing the Opposition’s concerns in the Rajya Sabha.
Here are some of the key benefits of GST:
- GST will cover the GDP more comprehensively by covering a wider base of goods and services A single indirect tax regime will be instrumental in removing cascading taxation, i.e., tax payment upon tax, or multiple taxation.
- GST will eliminate any direct interaction between the assessing authority and the tax payer by standardizing and automating processes, and will interlink incentives for compliance, making the tax system more accountable.
- Overall and on an average, tax slabs may see reductions and the industry may benefit from the greater cash flow that will ensue.
Despite these proposed gains, a closer look at the GST reveals certain drawbacks. Four slabs is a significant number of tax slabs for a unified tax regime, and the tax rates appear to be high. These factors are likely to lead to tax evasions and legal battles.
Proposed outcomes of the GST for tax payers and businesses
For businesses, the implications vary. The “Place of Supply” and the “Time of Supply” are two important considerations that businesses must reflect on.
Goods and service providers will be subject to the tax slab depending on the “Place of Supply”. If the “Place of Supply” is intra-state, then each company entity will need to register separately for the GST in each state of operation, and will be liable to a mix of CGST and the respective State’s SGST. For “Place of Supply” being inter-state, the business will need to register in the state of origin and avail IGST in the remaining states. This makes it imperative for businesses to register correctly to levy the appropriate taxation rate.
Business norms for supplier management will change, with input credit being made available to businesses, but compliance requirements will become more stringent, leading to additional costs for businesses. Businesses must therefore be prepared to plan their cash flows better in light of the GST implementation. This is particularly true with regards to input tax credit, which can have strong implications on working capital for SMEs. This might create a cash crunch in the short term, but will equalize over time.
With the GST rollout fast approaching, it is best to stay informed and be prepared for this sweeping change. We at Capital Float can help you do just that: Visit our GST blog to know more about GST and keep track of latest.
Oct 24, 2018
India’s growth as an economic power in Asia has been consistent in the past one decade. In addition to the contribution of larger corporations and the multinational companies that have forayed here, this economic growth is significantly supported by the small and medium enterprises (SMEs) – a highly resilient and innovative sector that employees more than half of the Indian population.
The SME sector of India holds a huge potential for growth. However, the only challenge that could thwart their evolution is the lack of timely and adequate capital. A majority of the organisations in this sector operate as small entities that may lack the detailed documents or collateral required to procure loans from banks. Some of them are simply reluctant to offer their financial assets as security for the fear of losing them.
Given this lack of funds, small businesses face problems in meeting their operating expenses and are constrained from expanding their operations. Other problems include making payments on debt (owed to any other source of finance) and buying supplies to fulfil their contracts.
A solution against such inadequacies has emerged in the form of FinTech companies that focus on financing small and medium enterprises.
The FinTech revolution has been facilitated by digital technology wherein funds are instantly provided to eligible SMEs after the evaluation of certain documents submitted online by them. As a pioneer in Fintech lending, Capital Float has a 10-minute online application processing system, followed by a three-day disbursal TAT.
The ease of borrowing from online lenders has also raised a question – are these companies a threat to the conventional lending setup established by banks?
Contrary to what is usually perceived, FinTech companies have proved to be active partners for banks and are helping them disburse more loans. They have assisted banks in identifying good customers faster and in disbursing quick credit.
Thanks to the robust growth of the economy in the last few years and the positive outlook for the manufacturing and services sectors, there is sufficient room for growth for both traditional and new age lending institutions.
Although their functioning may differ, lending decisions for both have to be guided by a good knowledge of the customer’s ability to repay the loan. Banks typically lend to individuals or businesses that have high regular income and/or the willingness to offer collateral as security. The collateral must be a financial asset that can be liquidated in case the borrower is unable to pay back. Banks refer to income tax returns, credit bureau scores and operational history of the concerned applicant.
In comparison, and driven by their intent to know their customers better, peer-to-peer lending companies employ non-conventional data sources for underwriting loans to individuals. As these companies are in the private sector, they are not fraught by a levy of formal regulations in evaluating clients for funds. They use multiple data points, including information extracted from new age technology such as big data analytics, to assess creditworthiness. In addition, they offer unsecured loans that do not require applicants to pledge any of their assets. These companies use a streamlined underwriting process along with risk management. Their work is characterised by extensive use of sophisticated technology and lower operating costs.
As the business of FinTech lending grows, banks also acknowledge that their customers today are technology savvy, and they are looking at ways where collaborations with online lenders can help them serve their own customers better. Because of their success in the credit market, FinTech companies have proved that this can be done without operational or regulatory risk to the lender.
Since 2015, the digital lending industry has undergone significant changes, and chief among these is the shift towards a cashless system. The promotion of cashless technologies – digital wallets, Internet banking and mobile-based point of sale – has reshaped the financial sector. Later, demonetisation became a major factor that popularized the concept of online lending.
As a positive development, banks are now looking at online lenders as partners instead of as competitors in the market. Some banks have made arrangements where they, in return for a small fee, refer customers to p2p lending platforms that provide unsecured loans that not offered by banks. Through such a program, they facilitate loans for businesses that deserve to get funds but cannot procure them from banks due to long-established, inflexible rules.
Some banks are part of programs that let them use a FinTech organisation’s technology to provide small business loans. These loans are retained on the bank’s own books, but the FinTech company’s platform is used to approve and service them. The banks see this as an opportunity to offer a product they generally do not have on their portfolio but (by seeking the support of a peer-to-peer lender), it helps them retain precious client relationships.
Banks have large balance sheets that they can use to provide loans and cater to promising start-ups and SMEs with a consistent growth rate. However, their conventional underwriting practices have deterred them from promoting some SME segments. Conversely, the government has now highlighted SME as a priority sector in the economic development of India. Therefore, the banks have to meet their new business lending targets without incurring huge costs.
The credit gap in the market can be closed with a fruitful relationship between banks and peer-to-peer lending companies. Capital Float has custom-made loan products and fine-tuned technology to help banks achieve their goals. It can help them reach out to businesses in need, and banks can then use their financial strength to service them.
New age financial technology has transformed the way consumers, and businesses, borrow and spend money. The aim of FinTech lending is to enhance the convenience of financial services and bridge the gap between demand and supply of small business loans. To help their customers, banks can effectively work alongside peer-to-peer lenders instead of competing with them.
Oct 24, 2018