The 2017 Union Budget underlined the significant role that Small and Medium Enterprises (SMEs) play in the development of the country, in terms of industrial output, exports and generating employment. While SMEs contribute to the growth of the country, they face challenges in raising finances due to their size and their inability to provide adequate collateral.
Many SMEs have operational problems due to improper management and as a result, the lenders are wary about extending SME finance. To cover their risk, they charge higher rates of interest, insist on proper collateral, take extra efforts during due diligence, and even try to appoint their representative on the company board. Given the extra effort required when it comes to SME lending, traditional SME finance companies take a long time to disburse the loans.
Institutional route to SME finance
SME need loans to finance their working capital requirements. SME finance for working capital requirements traditionally starts with the establishment of cash credit, overdraft and working capital limits with the banks. SME finance is also required for purchasing assets and for expanding and scaling the business. For this purpose, term loans are secured from banks and SME finance companies for purchasing assets and for meeting other incidental expenses. Apart from these sources of finance, SMEs can also secure funds from the following traditional sources:
- Export credit to finance the pre-shipment and post-shipment export-related activities.
- Letters of Credit (LCs) and bank guarantees to facilitate trade and meet the performance and financial obligations.
- Bill discounting where bills of exchange which are covered by LCs or bank guarantees are discounted by banks, NBFCs or SME finance companies.
- Leasing where the banks, NBFCs or SME finance companies buy the asset on behalf of the SME and then lease it back to the SME.
- Factoring and securitisation where illiquid assets are used to secure advances from banks, NBFCs or SME finance companies.
- Venture capital investments from individual investors or companies.
Government impetus to SME lending
Recognising the issues faced by small businesses and their criticality to India’s development, the Government has initiated several measures to ease the credit availability for this segment.
- The finance minister has set the lending target for SME finance at Rs 2.44 lakh crore for 2017. In other words the directive ensures that banks and financial institutions will disburse loans to SMEs collectively worth Rs 2.44 lakh crore through this year.
- The Government’s Credit Guarantee Scheme (CGS) under the Ministry of Micro, Small & Medium Enterprises (MSME), which secures the loans given by banks to SMEs, now has an increased outlay of Rs 2 crore from the earlier Rs 1 crore.
- The 2017 Union Budget infused Rs 10,000 crore of capital into state-owned lending institutions to promote SME lending.
- SMEs can continue to avail of loans under the Pradhan Mantri Mudra Yojana, where SME finance is disbursed to small businesses as working capital loans or short-term loans. The amount ranges from Rs 50,000 to Rs 10 Lakh and no collateral is required as they are covered/secured by the CGS scheme.
Alternative SME finance channels
Rapid strides in technology are changing the banking and financial industry and several new channels of credit are emerging as viable alternatives for cash-strapped SMEs.
New age FinTech companies are using advanced technology to introduce new SME lending products that have quick and easy approval processes. Companies like Capital Float have made it easier to secure SME finance. Such new age SME finance companies have introduced online portals and mobile apps that can be used by SMEs to apply for and manage loans. They have simplified and shortened the loan approval process by using big data and analytics to evaluate loan applications.
New age SME finance companies like Capital Float have also introduced innovative financial products for customised SME lending. These new SME lending solutions include:
Collateral-free financing solutions: These are unsecured loans given by the SME finance companies to SMEs who cannot or do not want to provide any security. FinTech SME finance companies like Capital Float use technology to swiftly assess the credit-worthiness of the loan applicants and speed up disbursal so that a business owner can receive the loan amount in their account within 72 hours. Capital Float also has easy and flexible repayment terms which make the loan easier for SMEs to manage.
Merchant cash advances or credit card receivables: These unsecured loans or advances can be availed of by SMEs who use Point-of-Sale (PoS) terminals. The amount advanced is dependent on the monthly credit card sales generated on the point-of-sale machine.
Online seller finance: This is a working capital loan given to e-commerce vendors for managing their day-to-day operations and leveraging business opportunities.
Supply chain finance: In this kind of financing, the SME finance company liquidates the borrower’s invoices by paying up to 80% of the invoice value to the borrower.
Capital Float is one of the leading SME finance companies that uses FinTech to create SME-friendly credit options. It provides short term unsecured loans to SMEs, and a basket of customised financial products that cater to the needs of small entrepreneurs. These include online seller finance, supply chain finance, merchant cash advance, and Pay Later, which is a revolving credit facility.
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In their endeavour to provide quality education and enable all-round development of students through extra-curricular activities, schools in India often need to make some investments. The authorities have to ensure that classrooms are well furnished, there is quality sports kit in the games room, labs have the proper equipment for demonstrations and practical experiments and all essential amenities vital to a respectable educational service are available. To finance such facilities, they may at times seek school loans.
“How to get loan for school?” is the first question that comes to mind in such a scenario. Thanks to the digital lending solutions offered by FinTech companies today, recognised schools with classes up to VIII/X/XII standard could easily get collateral-free school loans of up to Rs 50 lakhs.
For what purposes can a school get such an amount? Let’s look at the common reasons that prompt schools to apply for quick loans:
Construct a school building
With a 50 lakh loan for construction of school building, the borrowing institution can build new classrooms to accommodate more students. The amount can also be used to construct a spacious staffroom or for any other structure that the school campus needs. With regular revenue through their monthly fee from students, running schools can afford to pay back the loan amount in EMIs.
Buy school furniture
The furniture used in classrooms and other areas of the school building can seem expensive to buy at short notice. However, quick funding by a FinTech company offering school loans enables the institution to make the purchase conveniently. Like other funds, the amount approved on loan for buying school furniture is credited into the bank account of the borrower within 2-3 days of the application approval and can then be used to purchase the required furniture items.
Build school laboratories
An amount of up to Rs 50 lakhs is usually adequate as a loan for building school laboratory. Schools that have recently advanced their classrooms to X or XII standard may not have science labs for the practical sessions required by the students of these grades. With an unsecured loan from a FinTech lender, they can finance the construction of such facilities. Institutions can also apply for loans to enlarge or refurbish the labs that they already have.
Parents expect safe transport facilities from a school, especially for their younger children. A van, minibus and larger buses can cost anywhere between Rs 7 lakh and Rs 50 lakh depending on its size, brand and age – new/used. Schools that want to buy their own vehicles or enlarge the existing fleet can use FinTech collateral-free loans available for such purposes.
Buy new teaching devices
A quick school loan is the best resort when the school needs to have better teaching devices installed in its classrooms and labs. These could be computers, whiteboards, overhead projectors and other hardware especially commissioned for education purposes. FinTech companies lend up to Rs 50 lakh for such teaching aids.
Develop the school campus
An unsecured loan of Rs 50 lakhs can be used for any other productive purpose that contributes towards the development of school and helps it become a more valuable education service provider. The institution simply needs to state the objective clearly in the loan application and provide the required documents authenticating its eligibility for the fund. It can also arrange for a flexible repayment structure when a FinTech lender disburses the loan for school development.
As a trusted FinTech company providing loans to schools, Capital Float has customised credit products to support educational institutions across India. To talk about your school loans requirements, feel free to call on 1860 419 0999.
Oct 24, 2018
A wave of change is sweeping across the nation, transforming accessibility of credit at an individual and institutional level. As stated by the World Bank in 2014, nearly 47% of Indian adults are disconnected from formalized financial systems, increasing their dependency on informal credit channels. The nature of these informal channels and the environment fostering their sustenance make these modes of funding exorbitantly expensive. These channels typically provide immediate funding but debilitate the borrower’s sustainability and competitiveness in the long-term. Usurious rates of interest, loans terms disconnected from business fundamentals and delayed-decision making shackle entrepreneurs armed with ambition.
The apprehensions involving credit-access notwithstanding, SMEs find themselves lucratively placed in the timeline of the Indian economy, wherein Governmental and capitalistic forces are aligning in order to further SME progression in the country. Centre-led initiatives and evolutionary processes set up by tactful corporates are becoming building blocks to facilitate economic development through SMEs.
SMEs central to India’s economic development
The Government of India has identified the significant role SMEs play in shaping and developing the economy. The ‘Make in India’ initiative was launched last year to attract foreign and local investment to the country’s manufacturing sector. SMEs are required to participate actively in making this initiative a success. The pro-manufacturing stance of the Government provides these businesses with the opportunity to scale and grow at an accelerated pace.
India destined to become an e-commerce superpower
Similarly, e-commerce companies in India are in the golden phase of technological advancement. According to Goldman Sachs, India’s e-commerce market will cross the $100 billion mark by FY20. A study by PWC indicated that the e-commerce industry is expected to grow from $16.4 billion in 2014 to $21.3 billion in 2015. Alibaba.com, the B2B division of the world’s largest e-retailer Alibaba Group recently announced that India is the second most important market for the company globally . A whopping majority of the e-commerce space presently comprises of e-tailing and e-travel companies. Alibaba is likely to provide B2B companies the much-needed platform to establish their presence.
Credit now just a click away
Several factors could hinder SMEs from expanding at a geometric rate. Possibly the most critical of these is credit. Companies are queuing to alter the perception and approach to credit, with many organisations attempting to transform finance from a function to a service.
A recent article on YourStory mentioned that over 500 financial technology start-ups in India have received $1.4 billion in funding since 2012. These are not merely in the credit services sector but also include companies in the mobile payment services sector. With 90% mobile phone penetration in the country and smartphone sales expected to reach 500 million units in the next five years, digital engagement with consumers will be higher than ever before.
Pioneer with purpose
Capital Float, the pioneer in digital lending for SMEs in India, is spearheading this digital revolution. We understand the crippling effects collateral-based loans have on business progression and the inherent anxiety they cause. Our expertise in big data, decision sciences proficiency and technological prowess gives us the edge to provide specially tailored financial services to small and medium businesses across the country. Competitive interest rates make us relevant and digital platforms increase our reach. Gone are the days when SMEs toiled to acquire credit. Digitized processes have bridged the gap between the borrower and capital, the two now being separated by a few clicks of the mouse.
Digital Lending will gradually replace conventional credit channels. In response to the altering financial landscape, traditional organisations are revisiting their work-flows and are attempting to revitalize processes to become felicitous options.
SMEs are evolving at a rapid rate and it’s not surprising that access to finance too is changing simultaneously.
Author – Rajath Kumar, Marketing Manager, Capital Float.
Oct 24, 2018
As India’s leading digital lender, we are always mindful of what’s most important for us: our customers. All Capital Float’s finance solutions can be customized based on the nature of your business and the rate of cash flows, among other things. Our online loan application process ensures that you can avail a loan anytime, anywhere with minimal documents. Flexible repayment terms through offline and online channels are facilitated to ensure that you have a seamless financing experience with Capital Float, through and through.
With the added ease that digital wallets provide, we have collaborated with Paytm to set up yet another payment option for your convenience. EMI payment can now be done through your Paytm wallet in two ways: directly through the Paytm app or from your Paytm wallet via the Capital Float mobile app.
Here are the steps for a successful EMI transaction using your Paytm wallet.
1. Via the Paytm Mobile App
Step 1: Login to the Paytm app on your smartphone. Under the ‘Recharge/Pay for’ section, click on Loans
Step 2: From the list of financial lenders listed, choose Capital Float
Step 3: On the page ‘Pay Your Loan EMI’, enter your Loan Account Number (LAN) and click on Get Payable Amount.
Step 4: Your due EMI will be automatically generated on the next screen. Click on ‘Proceed to Pay’ to make the payment.
2. Via the Capital Float App
Step 1: Open the Capital Float app, and Login by entering your registered phone number or email ID & password. You can also Login via Google if you had registered with a Gmail email address.
Step 2: Under the Loans tab, click on the option ‘Repay’. If your EMI payment is overdue, check the Updates tab for Overdue and select ‘Pay Now’.
Step 3: The Overdue Amount will be shown. If you select Upcoming Amount only, then this will get preselected. You can enter a lesser amount under ‘Make Payment of’ as well.
Step 4: Choose the option ‘Pay from your Paytm wallet’ and login using your registered mobile number and a 6-digit OTP code.
Step 5: Recharge using debit card/credit card/net banking or utilize the available balance in your Paytm wallet to complete the transaction.
Note: Capital Float accepts EMI payments via Paytm ONLY through the above mentioned methods. A Capital Float representative will NOT ask you to make loan payments to other mobile numbers. In case you receive such a request, please contact us at 1800 419 0999 or email us at firstname.lastname@example.org
Oct 24, 2018