While dining at a restaurant, customers either settle the bill through cash or by using a credit or debit card. Similarly, online shopping also offers the advantage of choice of paying by cash or card. In both cases, apart from offering quality service and/or products, the customer experience is further enhanced when a merchant offers the convenience of choice. Keeping customer satisfaction in mind, the use of card payment devices has become a norm for modern-day businesses. After all, a business’ success largely depends on how happy its customers are. A well-run business attracts more customers and eventually ensures long-term gains. These include better profit margins, wider customer base, higher brand value, etc.
One of the key factors that makes all this possible for a business, regardless of its size, is working capital. A travel agency runs very differently from, let’s say, a flourishing B2B business. However, the need for access to quick finance is something they have in common. Given that swiping of credit or debit cards is fast becoming commonplace, businesses are waking up to the fact that they can utilize point-of-sale card machines to their advantage. In other words, they can use the cash flowing into their merchant account from card swipes to avail of merchant credit advance.
Merchant cash advance companies ensure a quicker and easy access to money. Turning to a conventional lender for working capital needs is not always possible for a small business, nor in most cases is it simple. This swings the spotlight on merchant cash advance loans. A tailor-made financial product, Capital Float’s merchant cash advance option has benefited several Small and Medium Enterprises (SMEs).
Our association with several point-of-sale card machine vendors like Mswipe, ICICI Merchant Services, Pine Labs, Bijlipay and MRL Posnet enables a wide range of merchants to obtain customized working capital solutions from us in the form of a merchant cash advance loan.
Approaching merchant cash advance companies like Capital Float makes sound sense for SMEs in search of quick access to funds. Here are 5 important reasons why SMEs should opt for merchant cash advance loans over other types.
1- Broader loan range: Capital Float’s merchant cash advance loan offers SMEs the flexibility of choosing the exact amount of capital they need. Addressing credit requirements ranging from as low as Rs. 1 lakh to as high as Rs. 3 crores, this is a customized financing option based on the monthly card settlement of a business. A merchant credit advance loan is an ideal solution for those who have consistent card inflows as well as short-term investment requirements.
2- Flexible loan tenure: Apart from offering the advantage of cashless transactions, point-of-sale machines can help speed up access to working capital. Capital Float’s merchant cash advance loan, based on card swipes comes with the benefit of flexible loan tenure. SMEs can opt for a 6-month or 12-month repayment term, making it easier to pay back the loan at their convenience.
Besides, payment to the merchant cash advance company varies directly with the merchant’s sales volumes. This means SMEs have the option of paying less during a low season. Additionally, with this innovative alternative, they need not pay monthly EMIs which are the norm in traditional small business loans; they can pay weekly or fortnightly installments too.
3-Get up to 200% of your monthly card settlement: Merchant credit advance loans work like a charm for retail businesses as well as restaurateurs. Given the high extent of card swipes in today’s digitized and connected world, one can receive financing up to 200% of monthly sales from card payment machines. Higher card swipes can mean a higher loan amount.
4- Apply anytime, anywhere: Typically, loan applications are a laborious process requiring several trips to the bank. But alternative financing options like merchant credit advance are anything but that. In fact, merchant cash advance companies offer a quick and hassle-free online application process, with forms that can be filled and uploaded anytime, from anywhere. The entire process of filling out an application form and submitting the required documents takes just 10 minutes. It is time to bid adieu to lengthy procedures and paperwork required for a conventional loan.
What’s more, at Capital Float we understand the value of quick access to credit. Meeting an unexpected business expense or leveraging a lucrative business opportunity can be a challenge for well-managed businesses. Utilizing innovative technology for speeding up loan approvals, Capital Float disburses merchant cash advance loans within 72 hours.
5. Simple pre-requisites: Merchant credit advance is something SMEs can easily apply and avail of. The prerequisites are simple and include the following qualifiers:
- Operational history of one year
- Minimum turnover of Rs 20,00,000
- Card acceptance vintage of six months
- Minimum monthly card volume of Rs 1,00,000
- Minimum of six settlements per month
Personalized and transparent
Capital Float fully comprehends the fact that loan products need to be customized according to the needs of a business. Therefore, going for a financing option like merchant cash advance loan makes sound sense. SMEs receive exactly what they are looking for in terms of working capital; and the merchant credit advance is convenient in terms of repayment.
Capital Float believes in conducting business in a transparent manner; we do not levy any kind of hidden charge whatsoever. There is no pre-closure penalty either — another advantage in the merchant cash advance loan. The borrower is only obligated to pay a processing fee of up to 2% of the loan.
Capital Float aims to remove financial barriers that stand between SMEs and growth by providing easy access to capital. Our merchant cash advance loans are a simple and secure means to bridge the credit gap that small businesses routinely face.
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An increasing number of businesses in India, even the smaller ones, are beginning to accept payments for their products and services via credit cards. The acceptance of credit card payments is not only convenient but also a boon for these units, as the same can be used to get short-term funding or advances from funding agencies. A merchant cash advance, as the name suggests, is a cash advance to merchants against their future credit card payment receivables.
Merchant cash advance is a relatively new form of funding in India for small businesses that need fast access to cash and have an established credit card transaction history. Widely used in the US and Canada for several years now, this type of lending is a convenient and easy method of raising funds. It’s not really a loan, rather an advance payment against the future income of a business. Merchant cash advance loans are an ideal solution for small businesses and entrepreneurs who lack adequate organized funding and often resort to borrowing from friends, family or unorganized lenders. They are emerging as an optimum solution for meeting the funding requirements of businesses with a regular income received via credit cards.
SMEs and Funding Options
A majority of the small and medium enterprises (SMEs) today operate with cash cycles of 60 days or more, but options for getting working capital finance are severely limited. Although the SME segment plays a key role in India’s economic growth, these enterprises suffer on account of inadequate funding options and thus resort to high interest loans from the informal segment.
Recent years have, however, witnessed the development of innovative products by non-banking finance companies (NBFCs) and micro lenders to fill the funding gap in the SME segment. Merchant cash advance is one such product that aims to help small businesses garner the necessary working capital by way of advances against the future income of a business.
Merchant Cash Advance: A Simple and Convenient Product
A merchant cash capital provider would give you a lump-sum amount, which is paid off automatically when they take a percentage of your daily credit card receipts. Since the repayment is linked to credit card receipts, this funding option is suitable for businesses that have a significant portion of their income via the credit card receipts. These include restaurant owners, online shopping sites, merchants and service providers.
The rate at which repayments are made or the retrieval rate can vary from 5% to 20% of the credit card receipts of a business. This retrieval rate is decided on the basis of the amount of advance, the quantum of sales via credit cards and the repayment period. Another important feature of this type of funding is that repayment begins immediately after the receipt of the funds with the total duration of the advance ranging between 180 and 360 days.
The amount of advance that a small business can get is determined by its average credit card sales. A merchant advance provider generally reviews your income inflow over the past six months to determine the advance amount that you can get. The funds provider generally ties up with the credit card payment processors with a predetermined percentage of the merchant’s credit card sales being transferred to the lender directly. The time taken to repay this advance is dependent on the percentage of credit card sales being given to the finance provider. The higher the percentage, the shorter is the time it would take to repay the advance.
Why Opt for a Merchant Cash Advance?
There are several reasons that make a merchant cash advance a preferred funding option for small businesses with high credit card transactions. These include:
1. Easy to Apply: It is very easy to apply for a merchant cash advance. All you need to do is to fill an online application form and upload the required supporting documents like your tax returns, bank account statements and credit card processing statements.
2. Quick Processing: Fund providers like Capital Float that rely heavily on cutting-edge technology take a decision within a few hours and deliver the funds within a few days. This is highly beneficial for businesses that require quick cash to cover unexpected business expenses.
3. Perfect Credit Score Not the Criteria: A merchant cash advance is sanctioned solely on the basis of the credit card receipts of a business and their consistency, without assigning too much importance paid to the credit score of an individual or business.
4. Unsecured Loans: A merchant cash advance is an unsecured loan that can be obtained without mortgaging any asset. No collateral is required and the focus is the future income.
5. Flexible Repayment: Since the repayment amount is a specific percentage of your credit card sales during a month, you are not overburdened or under pressure to pay more even during a lean period for your business or when your business is going through a rough patch and the sales are not up to the mark.
6. High Limits: Advance fund providers generally offer a higher borrowing limit than banks since they take their decisions on the basis of your future income.
7. No Impact on Credit Report: Since merchant cash capital is actually a sales transaction, it does not get reflected in the credit record of the business or the business owner.
A word of caution before you decide to take a merchant cash advance for funding your working capital needs. The cost of this type of funding may be higher than the loans taken from banks because the repayment is dependent on the factor rate of your advance. This factor rate is multiplied by the amount of advance to derive the total amount to be repaid. You can reap the benefits of merchant cash advance loans to fund your working capital needs by negotiating a lower holdback percentage. Although this will increase the repayment duration, it will help you minimize the cost.
Oct 24, 2018
GST Rate Revisions as on 6 October 2017
|Good/Service||Present GST Rate||Revised GST Rate|
|Duty credit scrips||5%||Nil|
|Mangoes sliced dried||12%||5%|
|Khakra and plain chapati / roti|
|Namkeens other than those put up in unit container and, –
(a)bearing a registered brand name; or
(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily
|Ayurvedic, Unani, Siddha, Homeopathy medicines, other than those bearing a brand name|
|Paper waste or scrap|
|Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme duly approved by the Central Government or any State Government, subject to specified conditions||18%||5%|
|Plastic waste, parings or scrap|
|Rubber waste, parings or scrap|
|Cullet or other waste or Scrap of Glass|
|Hard Rubber waste or scrap||28%||5%|
|Sewing thread of manmade filaments, whether or not put up for retail sale||18%||12%|
|All synthetic filament yarn, such as nylon, polyester, acrylic, etc.|
|All artificial filament yarn, such as viscose rayon, cuprammonium|
|Sewing thread of manmade staple fibres|
|Yarn of manmade staple fibres|
|Modelling paste for children amusement|
|All goods falling under heading 6802 [other than those of marble and granite or those which attract 12% GST]|
|Fittings for loose-leaf binders or files, letter clips, letter corners, paper clips, indexing tags and similar office articles, of base metal; staples in strips (for example, for offices, upholstery, packaging), of base metal|
|Plain Shaft Bearing|
|Parts suitable for use solely or principally with fixed Speed Diesel Engines of power not exceeding 15HP|
|Parts suitable for use solely or principally with power driven pumps primarily designed for handling water, namely, centrifugal pumps (horizontal and vertical), deep tube-well turbine pumps, submersible pumps, axial flow and mixed flow vertical pumps|
|Imposing GST only on the net quantity of superior kerosene oil [SKO] retained for the manufacture of Linear Alkyl Benzene [LAB]||18%||18% (Clarification to be issued)|
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Oct 24, 2018
One of the biggest tax revolutions of India is underway as businesses and tax payers are gearing up for the change. These enterprises and individuals are assessing how the GST rollout will make a difference to them. One such segment is the Small and Medium Enterprises (SME) segment, which contributes significantly to India’s GDP and exports. The positive effects from GST are expected to drive decentralization of opportunities and provide an impetus to India’s GDP. However there is some concern that some of its policy implications could slow down business, and that is what small and medium enterprises must prepare for. Gaining know-how on GST rules and implications is the first step towards becoming GST-compliant and becoming tax-savvy. This blog will help you understand which SMEs are eligible for GST and the impact on the sector as a whole.
How GST will impact business transactions
GST will typically impact any business at two ends of the spectrum where transactions are involved i.e. for input transactions and for output transactions.
- Input transactions: An input transaction is a transaction carried out for the supply of input goods / services like raw material procurement, imports etc. Input transactions will be directly affected due to the changes in taxation levels of raw materials/industrial inputs, affecting the product or service pricing.
- Output transactions: An output transaction is one that is done for outbound supplies or service delivery. For example, sales is an output transaction. GST will directly impact the sales by altering the taxation of the product or service being sold. Depending on the new tax slab of the goods or service, the profitability of the enterprise will be directly impacted.
Another significant impact area is due to the concept of “place of supply” and “time of supply”, calling for more stringent supplier compliances.
Which SMEs are eligible for GST?
SMEs are a major driver in the Indian economy, contributing to almost 7% of the manufacturing GDP and 31% of the services GDP. With a consistent growth rate of about 10%, they employ about 120 million people and contribute to around 46% of the overall exports from India.
Under the GST regime, this significant sector too is set to change. First and foremost, all businesses, including SMEs will need to register for GST under the rules as per the following threshold limits related to aggregate turnover:
|Region||Liability to Register||Liability for Payment of Tax|
|North East India||Rs. 9 lakh||Rs. 10 lakh|
|Rest of India||Rs. 19 lakh||Rs. 20 lakh|
Why should SMEs enrol for GST?
An SME registered under GST will be recognized as a legal provider of goods and/or services. Tax accounting will be streamlined. Such an SME will be able to maintain proper accounting of taxes paid on input goods or services, and be able to utilise the inputs credit facility to enable better cash flows. GST will provide an opportunity for SMEs to digitize their transaction management, making it efficient for the future. If such an SME scales up, it will be prepared in advance to manage large-scale transactions through software. GST enrolment thus provides a window of opportunity to modernise the business and set up standards for doing business easily in the future.
Moreover, digital transactions tend to leave a digital footprint. These footprints can be used to assess the sector with greater accuracy, as Fintech lenders can create customized financial solutions for these SMEs, which are currently under-served from a credit perspective.
Impact of GST on SMEs
Overall, the SME sector seems to be skittish about the impact of GST. Here is a look at some of the pros that GST brings to SMEs.
- Ease of starting a business: The old tax regime requires new entrepreneurs to obtain VAT registration for every state separately, with each state having its own rules. Though GST too requires businesses to register in each state, the rules for GST are more uniform and outlined clearly on the portal. This will make it easier to set up an SME.
- Ability to compete with multinationals and multi-state enterprises: GST is a destination-based taxation system and not source-based. Locally manufactured goods by SMEs will pay the same amount of tax as imported goods from multinationals. Moreover, corporates generally ‘stock transfer’ transfer goods to escape the taxes on inter-state transfers. SMEs are not able to ‘stock transfer’ goods due to lack of infrastructure; they physically transfer goods and pay inter-state taxes, leading to higher expenses. Under GST, the stock transfers would be taxed. This will help put SMEs at par with large multinational corporations, allowing them to compete on an equal tax footage.
- Transparent transactions: SMEs often do not have the resources (processes and people) to dedicate to tax transaction management. GST will enable an online and transparent view of tax obligations and on-goings, minimizing the need to liaison with tax authorities offline. Though it will take some initial investment now, SMEs that streamline their transactions now will be setting up future-ready systems and processes.
- Reduced tax burdens due to rise in threshold: Under the old regime, business owners with an annual turnover of Rs 5 lakh (Rs 10 lakh in the North East), mandatorily need to register for VAT and make VAT payments. Under GST businesses above Rs 20 lakh turnover (Rs 10 lakh for North East) qualify for GST registration, which brings huge relief to SMEs. Thus, businesses that fall in the Rs 5 lakh – Rs 10 lakh revenue bucket need not register and will experience better cash flows because they are exempt from GST.
- Better Cash flow due to input credit facility: Cash flows may increase because of facility of input tax credit, wherein businesses will be able to avail credit on input expenses such as supplies. For example, for a business that procures steel as the raw material to manufacture utensils, the businessman will need to pay tax on the raw materials procured i.e. iron ore. He can adjust the tax paid on inputs from the taxes collected on outputs. This means that only the actual “value addition will be taxed.
- Better logistics: GST will help eliminate time-consuming border tax protocols, allowing for free flow of goods across borders. This will result in savings in logistical costs. CRISIL estimates that the logistical cost for companies manufacturing bulk goods will be reduced by around 20%.
Key Concerns around GST
- Investment to go tech-savvy: SMEs are typically not used to managing complex tax compliances, but GST will need SMEs to go digital. SMEs may need to hire or consult with GST experts to bring about a technology makeover resulting in additional expenses.
- Reduced tax exemptions: SMEs are eligible to avail a central excise threshold exemption of Rs 1.5 crore gross turnover; under the GST regime this exemption will reduce to Rs 20 lakh. As a result, SMEs with turnovers between Rs 20 lakh and Rs 1.5 crore will not be eligible for this tax exemption. This is an additional cost that will pinch SMEs that were previously used to being tax exempt.
- Higher tax rates may impact profitability: Despite assurances by the Finance Minister that overall tax slabs will not increase, the GST slabs indicate otherwise. The services tax rate has distinctly increased from 15% to 18%. Higher tax outflows means lesser profitability.
- Strict tax-compliance norms means more costs: GST will bring in an era of stringent compliance. For example, purchase invoices raised will have to be reconciled with the supplier of the goods. These invoices have to be uploaded by the entity by the 10th of every month and will need to be reconciled by the 15th of every month. SMEs are not used to carrying out such detailed and timely tax transactions and will need to hire personnel to help with tax management and compliance.
- Supplier-side compliance will affect the GST compliance rating: The ability of an SME to claim refunds is a direct result of its GST compliance rating. Going ahead, SMEs will be accountable for their suppliers’ non-compliance and they may take a hit on their Compliance Rating due to non-compliance at any leg of the operating cycle, right from procurement to service. Maintaining compliance records, periodic audits will need to be instated to ensure compliance of all stakeholders. This responsibility of supplier-side compliance is an added cost to the company.
- Time lag in input credit process: Input credit will only be available after a supplier declares the particulars of the supply and after these details are validated by the buyer electronically. Thus, a supplier is heavily dependent on the buyer’s response, leading to a probable time lag in availing input credit. Moreover, the timeline for claiming input tax credit is very limited— before the due date of filing returns for September of the next financial year, or, the due date of filing annual returns, whichever is later.
GST is all set to usher in an era of simplified taxation. SMEs must decide on the right investments to optimise the benefits of the change. This means investing time and resources in understanding the change, getting the right people and processes to change the way they do business to ensure GST-adherence. Such SMEs will emerge future-ready and poised to scale their business like never before.Get more information about GST on our GST blog.
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Oct 24, 2018