Three Ways to Improve Your Business Credit Score

Small business owners often have to go an extra mile to ensure the consistent growth and success of their ventures. They must work hard in dealing with their customers and suppliers. They also need to come up with innovative ways to market their products and services. In their efforts to polish the customer-facing, technical and marketing aspects, small and medium enterprises (SMEs) often overlook the attention that their creditworthiness requires, which is vital to their chances of getting business loans.

If all goes well for the business and it is able to get a constant stream of customers, its position in the industry will be strengthened. This, in turn, opens doors for business finance from banks, conventional non-banking finance companies (NBFCs) and the new age NBFCs in the form of FinTech lenders. However, a few clever methods help in improving the prospects for business funding.

If you are an entrepreneur with a promising business idea that is backed by adequate possibilities for success, you must take it forward. To improve your chances of getting a loan for business expansion, here are the three points that you can pay heed to:

1- Make timely payments on your bills and clear outstanding credit 

Financial discipline is the key to success when you are managing a commercially motivated organisation. In business, you may have to make regular payments to your suppliers and vendors. These ought to be made on time.

With frequent delays on the payment of your outstanding invoices, you may hurt your prospects for being qualified for business loans. A late payment on bills can damage your financial records, particularly if it gets reported to business credit scores rating agencies such as CIBIL.

If you had missed a couple of payments, but later managed to catch up with the regular cycle, the delayed payments may have had some adverse impact on your credit ratings. However, the damage is not permanent. As credit scores are a reflection of activities over a period, it can take some time for the new data to set in and replace the older information. The credit score will gradually improve to reflect your eligibility for business finance.

The focus should be on making payments on bills before they are due. This is not only a good habit that will help your business get higher credit ratings, but will also improve your relationships with the suppliers and vendors. If you have severe financial constraints, you can use strategies such as invoice financing. (Link to relevant product page can be placed here)

In addition to the bills raised by entities dealing with your company, payments on credit cards and existing loans should also be made on time. Most importantly, keep all the receipts against payment safely in your records.

2- Use credit prudently

The FinTech revolution has given access to fast business loans and has made it convenient for SMEs to expand their presence in the market. If you can demonstrate the ability to use your loan for business wisely, it will only improve your business credit rating and will help you borrow bigger amounts in future.

Funds must be used for the purpose that was stated to procure them. If you have taken a loan for business activities – such as paying a vendor, buying raw material or inventory, refurbishing a storefront – it must be used accordingly. Do not use business finance for personal expenses. The mixing of personal funds with those for business can happen unknowingly at times, especially for start-ups and sole proprietorships, but the two should be separated as soon as possible. This helps in improving the credit history records considerably.

Another point to understand here is – if your business has credit accounts in good standing, but you barely use them, do not be tempted to close such accounts. They may come to the rescue of your business plans in future. What is more, the closure of any account trims down the total amount of credit that may be available for your company, and conversely, increases the ratio of credit utilisation stats – this change of numbers will negatively impact the credit score.

When the debt load is haphazardly scattered in multiple accounts, you should work on reordering it so that there are smaller balances on different accounts. Once you are able to make regular payments on them, it will gain you credit for paying off more than one outstanding balance.

3- Avoid taking hasty or risky decisions 

When you are managing a business and dealing with people from different fields every day, you will have your own experiences and learn to do things differently. Keep a vigil on the financial situation of your organisation even if you have hired accountants to manage your finances. Decide upon the figures that you aim to achieve and know what it will imply for the health, bottom line and future prospects of your business. This helps to maintain focus and financial discipline.

Avoid the risks that can affect your business credit scores. Some activities such as dealing with other companies of dubious nature not only harm your brand image, but also deter your business finance providers. Keep away from inherently risky operations that can cause financial stress in future.

Lastly, if you spot any mistake in your credit history records, do not hesitate to get it amended or inform your prospective lender. If you had paid off a bill in time but it was shown to be outstanding by the concerned entity, divulge the receipts to make corrections and prove your point. As a FinTech company offering quick loans to small and medium enterprises, Capital Float is on a mission to promote the spirit of entrepreneurship in India. Our process of evaluating the creditworthiness of a business is concise, lucid and clear-cut. It enables a high number of businesses to get timely funds. Capital Float also guides start-ups and growing companies in improving their prospects for bigger loans in future. Visit our website to find the best product that suits your business need.

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All You Need To Know About Unsecured Business Loan for Traders

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.

The Challenge

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.

Solution for Cash Crunch in Business

The Solution

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.

Growth of revenue for traders

 

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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

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Tax Slabs & Understanding the Dynamics of Transactions under GST

Effective July 01, India would be joining a host of 160 other countries that have implemented GST/VAT in some form. This is a big step towards streamlined taxation norms. From new indirect tax slabs to drastically different taxation procedures, the Goods and Services Tax or the GST, will compel companies and taxpayers to realign their operating models.

Tax slabs in India under GST 

The new indirect taxation regime is based on a four-slab tax structure, and goods and services feature in these depending on their nature – whether it is a luxury item, a necessity or a leisure item. A total of 1211 items have been categorised under these four tax slabs, with a bulk of them (including services) being placed in the 18% bracket.

Previous tax rate (Approximate range) GST Rate Goods Services
No tax No tax Items of daily and mass consumption such as milk, butter, fresh fruits and vegetables, fresh meat, flours, bread, salt, prasad, bindi, sindoor, stamps and judicial papers, colouring books, newspapers, bangles etc. Hotels and lodges with a tariff below Rs 1000.
~ 5% (5% VAT and no excise) 5% Apparel below Rs 1000 and footwear below Rs 500, and essentials like kerosene and coal, medicines and insulin, stents. Edible oil, tea, coffee, frozen vegetables, skimmed milk powder, cashewnuts, incense sticks. Small restaurants, transport services like railways and air which have petroleum as the main input. Job works in textiles, gems, and jewellery.
~ 9% to 15% 12% Apparel over Rs 1000, Ayurvedic medicines, exercise books, preserves like pickles, sauces, ketchups, and fruit and vegetable preserves, umbrellas and packaged foods like butter, ghee, cheese, dry fruits. Basic cell phones. Non-AC hotels, pesticides and fertilisers, business class air tickets and work contracts.
~ 15% and 21% 28% Luxury goods and sin goods: SUVs, aerated drinks, white goods, paints,  ATM/ vending machines, vehicles, personal aircrafts; Sin goods such as bidis, chewing gum, paan masala. Certain select consumables will attract an additional cess. Movie tickets above Rs 100, five star hotels, race clubs, betting and other luxury services.

– Gold and rough diamonds have been allocated separate tax percentages of 3% and 0.25% respectively.

– Certain goods such as alcohol (for human consumption), consumption and sale of electricity, stamp duty and customs duty, and five petroleum products, namely, crude oil, natural gas, aviation fuel, diesel, and petrol have been excluded from GST for the initial years.

1. The GST council has revised the tax rates on 27 goods and 12 services with effect from 6 October 2017. Click here to read the revised list.

2. The GST council has revised the tax rates on 177 goods and services with effect from 15 November 2017.

3. The 25th GST Council met on 18 January 2018, where a third round of revisions was announced on 29 goods and 53 services, with effect from 25 January 2018.

How the transactions will change

Businesses will be impacted at both ends, i.e., at the inbound transactions such as imports (international business) and procurements (domestic), and at the outbound transactions, i.e., the sales. Here are some important transformations:

Place of Supply: Currently, many businesses operate on a state-wise warehousing model as transfers between inter-state warehouses are considered as stock transfers and are not liable to pay CST. Under GST, inter-state stock transfers between warehouses will also be subject to IGST at the “Place of Supply”. For example, a supplier of steel from Jharkhand to Orissa and Kerala, will need to pay IGST on the transfer of goods in Orissa and Kerala respectively. If there is a transfer of steel from the warehouse in Kerala to the warehouse in Orissa, IGST would still be applicable, but CST wouldn’t be payable on such a transaction. This change has been proposed to discourage suppliers from having multiple warehouses and adopt a single warehousing system.

Consideration of “Time of Supply Rules”: This factor determines when goods / services are to be supplied, and therefore, when the tax is to be paid (point of taxation). Under the GST, the Time of Supply for goods and services is the earlier of the following dates: (a) the date of issuing of invoice (or the last day by which invoice should have been issued) OR (b) the date of receipt of payment; whichever is earlier. For example, if the date of invoicing is May 20 and payment is received on July 1, the time of supply will be May 20. Which means that the  government wants to collect the tax at the earliest possible point in time, and businesses must plan their working capital keeping in mind these advanced payment timelines.

Provisions of Input Tax Credit: Input tax refers to the taxes that a manufacturer or service provider pays while buying the raw material or inputs. Under the GST, a business can reduce the tax it has paid on inputs from the taxes collected on outputs. In effect, businesses will be taxed only on the “value addition”. For example, if a manufacturer is paying Rs 300 on final product and has paid Rs 200 on inputs, he can claim input credit on Rs 200 and has a tax liability of only Rs 100. This facility will bring down the overall tax expenses of companies.

Lower exemption thresholds for Small Scale Industries: Currently, small scale industries can avail central excise threshold exemption of Rs. 1.5 crore. With the GST, this limit will be reduced to Rs. 20 lakh. As a result, a company that used to avail tax exemption of 1.5 crore can now avail only 20 lakh, leading to higher tax payments.   Benefits from higher registration threshold: Businesses with turnover of over 20 lakh (10 lakh for the North East) must mandatorily register for GST. Currently, the criteria for VAT is that businesses with turnover of over Rs 5 lakh (Rs 10 lakh for North East) must register for VAT. As a result a business that was in the Rs 5 lakh – Rs 20 lakh bracket is now exempt from indirect taxation.

These are some of the business-transactional implications of the GST. Organisations will have to design and implement extensive change management exercises to align GST with their desired business outcomes. Get more information about GST on our GST blog.

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Oct 24, 2018