Top 3 Reasons Why Unsecured Loans Help Small Businesses Grow Faster

A small business generally embarks on its journey through investments from angel investors or venture capitalists. As its business matures, it may aspire to borrow more money not only to keep the enterprise operational, but also to explore new horizons. Such a small business can approach banks and other traditional non-banking finance companies (NBFC) to procure business loans. However, these institutions follow a prolonged process for loan approval and prefer providing small business loans only against collateral. Most small businesses that are still in their growth phase do not have sufficient collateral to get secured business loans, and so their only avenue for business funding is an unsecured business loan.

The new age FinTech companies such as Capital Float provide unsecured loans in India to small businesses to help meet their urgent business needs. By applying innovative technologies, they are able to process an unsecured loan application in virtually no time. Their processing, from loan approval to disbursal, also remains completely transparent throughout. Once approved, the unsecured business loan amount is credited to the bank account of the customer in three working days.

Unsecured small business loans come to the rescue of small businesses at critical times, and with the right amount at the right time, they considerably aid a small business in growing faster. Let us look at how taking an unsecured business loan helps in business growth.

Maintaining healthy cash flows

In the past, small businesses used to be averse to availing an unsecured loan due to concerns about falling into a debt trap. They also occasionally lacked confidence in their ability to repay unsecured loans. This is no longer the case. In a fast-growing global economy such as India, plenty of opportunities are available for small businesses to explore with greater confidence. Maintaining a healthy cash flow position provides them with additional funds for marketing of products and services, adding new inventory, expanding premises or hiring more staff.

Unsecured small business loans provide the strategic edge to make wise investment choices, which help a small business to grow faster. The revenue earned from new business ventures can be used to repay the unsecured loan and to boost the cash flow position.

Timely access to funds

One of the great advantages of taking unsecured small business loans from FinTech companies is the hassle-free and speedy loan approval process. Business opportunities today appear in a flash and and could quickly disappear, unless tapped at the right moment. Therefore, a small business cannot afford to spend time on filling up lengthy unsecured loan application forms and collating the required business documents in support.

The application for an unsecured loan from FinTech companies can be done online or through a mobile app, and all essential business documents such as bank statements, previous loan statements, tax statements, business invoices, KYC documents and the like can be uploaded online. These companies focus on providing unsecured small business loans to SMEs and fully understand the business challenges faced by them.

A variety of unsecured loans for different business needs

Businesses can avail unsecured small business loans at competitive rates from FinTech companies such as Capital Float according to their need. We provide a variety of unsecured small business loans that are designed to take care of differing business requirements. These include:

• Term Finance: Small businesses that have been in operation for more than two years and have sound business financials can take unsecured loans such as Term Finance. This product allows a business to borrow money varying from rupees one lakh to rupees one crore, for a tenure ranging from a few months to up to three years. A nominal processing fee is charged, and there is generally no pre-closure penalty.

• Supply Chain Finance: SMEs with invoice receivables from large companies can avail themselves of Supply Chain Finance for up to 80% of the invoice value. This unsecured loan can be repaid either through monthly instalments or as a one-time payment upon receiving funds on your invoices.

• Online Seller Finance: Certain loans such as Online Seller Finance have been designed keeping in mind the specific requirements of merchants who sell aggressively through online marketplaces such as Flipkart and Amazon India. Such merchants can take up to 200% of their monthly receivables as an unsecured loan.

• Merchant Cash Advance: Businesses such as retail stores and restaurants that receive the bulk of their payments through card swipe machines can also take up to 200% of their monthly receivables as an advance upfront through this loan product. Merchant Cash Advance can be repaid through a fixed percentage deduction from the card settlement amount in the subsequent months.

Benefit from competitive interest rates for unsecured loans

Besides the various innovative services offered through technology, FinTech companies such as Capital Float also offer unsecured loans at the most competitive rates. The services offered are thoroughly professional in nature as compared to other NBFCs, and greater flexibility is offered in the repayment of unsecured loan, so that a business can focus more on achieving its growth targets.

Capital Float acts like a partner to small businesses, which could be traders, manufacturers, service providers or retailers. Unsecured small business loans are provided based on the financials of a small business, and at no point is there a requirement to pledge any asset.

Capital Float believes in being the pioneer in innovation while offering unsecured loans in India to SMEs. This is showcased through our various unsecured loan products to fulfil needs of businesses in every sector. Capital Float charges a flat processing fee of 2% across various unsecured loan products, and no hidden charges are levied beyond the interest rates.

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What is UBL and how we underwrite it

The SME sector in India is large and burgeoning. It contributes 45% of the industrial output and 40% of exports, and employs over 40 million people. With rapid economic growth and the impetus being given by the Government, this sector is expected to grow at a phenomenal pace, from accounting for 15% of India’s GDP in 2015 to 22% in 2018.

SMEs need funding

Despite its enviable growth, the smaller merchants and retailers face chronic cash shortage. Traditional banking offers more challenges than solutions to such enterprises. They are faced with long approval periods, demands of collateral, unsurmountable eligibility criteria and loan terms that are unsuitable to address short-term cash flow issues.

Unsecured Loans Provide the Relief

This is where unsecured loans come to their rescue. These are typically shorter-term loans that do not require collateral or guarantors. Some financial solutions are specifically designed to aid SMEs to address their working capital needs or expand their existing business. SMEs often work with limited resources and may find it challenging to pledge collateral to secure a loan. Unsecured business loans prove to be highly beneficial in this regard.

The Greatest Challenge to Overcome

Since unsecured loans by definition have no collateral to back them, a stringent underwriting process needs to be in place to ascertains the applicant’s intent and ability to repay the loan. The loan underwriting process must include the collation and verification of all the data provided by the applicant. This information is analyzed to determine the financial health of the enterprise and the creditworthiness of the individuals most closely associated with the business.

Relying on Cutting-Edge Technology

At Capital Float, we deploy cutting-edge technology to ensure that the process of loan approval is smooth, seamless and swift. This data driven process begins with the loan seeker filing an online application and uploading/giving access to all the relevant documents, including the company’s ITR, sales figures, balance sheet and cash flow statements. Our systems pull the data automatically from various external sources and populate the relevant fields. Capital Float lays specific importance to digital data available in the eco system e.g.; telly ledgers and purchase ledgers.

Apart from the documents provided, weightage is given to company ratings provided by rating agencies like CRISIL and ICRA. The bureau data is used extensively which goes beyond CIBIL scores and looks at hundreds of variables which might predict customer behavior.

The system collates all this information and draws up algorithm-based scores for each business. This initial screening process has no human intervention, since the technology is intelligent enough to identify a risky borrower and reject an application that does not meet the minimum criteria. All this is done in a matter of five minutes; whereas traditional banking could take anywhere between one to three months to decision a loan.

Once an application clears the first screening, experts from Capital Float visits the company’s premises, which could be the registered office or the factory. The experts spend time to understand the business model, the processes, the production capacity and the utilization of existing resources to gain a deeper insight into the health of the enterprise.

These inputs are also entered into the system, which uses powerful algorithms to analyze all the data being collated. These algorithms aid credit managers to take a more informed decision regarding loan approvals.

Thus, with the help of ground-breaking technology, Capital Float is able to approve loans in less than a week, while also ensuring NPAs remain exceptionally low.

Oct 24, 2018

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A digital prescription for the pharma industry

Pursues or desires to obtain pain of itself our because it is pain, but because occasionally can procure great pleasure.

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Important GST Definitions, Terms and Glossary

The GST is ready for implementation and brings with it a slew of changes that indirect tax payers and business owners need to get familiar with. Not only are businesses required to register themselves under the GSTN, they must also reassess their business in accordance with certain new terminologies to determine how the GST impacts them. A few of the important GST definitions and the registration process are briefly specified here to help you get started.

GST terms to know 

Certain essential definitions have been mentioned under the Model GST Law, which was first released in June, 2016, and then modified and released again in November, 2016.

Business : Definition: Business refers to trade, commerce, manufacture, profession, vocation or any other similar activity, including transactions related or incidental thereto, irrespective of volume or frequency, as well as supply of goods/ services in connection with commencement or closure of business.

The definition is quite wide and seems to be borrowed from State VAT legislations. Some parts have been modified to include transactions in services.

Place of Business : Definition: (a) A place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods. (b) A place where a taxable person maintains his books of account. (c) A place where a taxable person is engaged in business through an agent.

Since GST is a destination-based indirect taxation system, the place of business is a critical factor in determining the business model and taxation dues of a business that is present in many places.

Time of Supply : Definition: The time of supply is the earlier of the following dates: (a) Date of issue of invoice by the supplier or the last day by which the supplier is required to issue invoice or (b) Date of receipt of payment.

The time of supply is important since it determines the point of taxation i.e. the point in time when goods / services have been deemed to be supplied or services have been deemed to be provided and hence SGST or IGST apply.

Goods : Definition: “Goods” refers to every kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

While the term “movable property” has been mentioned, it has not been defined in the Model GST Law, and one needs to refer to the General Clauses Act 1897 for this. It does not include intangible property such as intellectual property rights (copyrights, trademarks). Also, an item needs to be movable for it to be classified as goods.

Services : Definition: “Services” means anything other than goods.

The GST Model Law clarifies that services include intangible property and actionable claims but does not include money. There are separate definitions for supply of software, works contracts and leasing transactions, even though they fall in the ambit of services. The inclusion of “actionable claim” may create confusion where financial and commercial transactions are involved.

Software includes the development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software, and is treated as a service.

As far as leasing transactions are concerned, a finance lease would be considered as supply of goods, and an operating lease would be considered as a service under the Model GST Law,

Works Contract : Definition: It is an agreement for carrying on building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property. Work Contract has been defined as a “Service”, simplifying its taxation procedure.

Supply : The GST has three new definitions related to “Supply”, i.e., Principal Supply, Composite Supply and Mixed Supply.

1. Principal Supply
Definition: It is the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.
It is generally the dominant supply in a bundle of supplies or a bundle of services. For example, in a mobile phone and the charger, the mobile phone will be the principal supply.

2. Composite Supply
Definition: a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

For example, goods packed with insurance and packing material is a composite supply, with the good being the principal supply. Here, there is a main supply and supporting supply, which normally go together in the course of business and enhance the enjoyment of the main supply.

3. Mixed Supply
Definition: Two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Take the case of a corporate gift pack that consists of a tie, a wallet and a pen. These are bundled in a package supplied for a single price. None of the items is dependent on the other, nor necessary to be purchased together. This is a case of a mixed supply, where the individual items, which can also be sold separately, are sold together.

Aggregate Turnover : Definition: “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Reverse charge tax is a system where the recipient of the supply (goods and services), i.e. the client, is liable to pay the tax. Inward supplies are input supplies used as an input for manufacturing the goods or providing the service. Tax paid on input expenses can be adjusted against tax paid on output supplies, through input tax credit. This means that it cannot be treated as a part of the aggregate turnover.

Read more about GST at our GST blog for India.

Oct 24, 2018