Top Reasons Why Unsecured Business Loans Are Becoming Popular

During the lifecycle of a business, there are times when the inadequacy of working capital threatens the flow of operations and hinders growth. Traditional lending institutions in India such as banks rarely provide assistance in such situations, as they generally demand collateral, which small business and young entrepreneurs may not possess. An unsecured business loan can take care of routine business expenditure such as maintenance of machinery, making payments to suppliers and purchasing raw material. It can also be useful for business expansion activities such as purchasing new machinery or expanding premises.

Moreover, all small and medium enterprises need funds to seize new opportunities for growth, and the window for such opportunities is usually small. In such a scenario, there is a need for quick access to funds. The loan repayment schedule also needs to be synchronous with the expected revenue flow from a business venture. Hence, an unsecured business loan taken from a FinTech company works best for them, as it is disbursed much faster than a loan from a bank. Further, these FinTech companies ensure that an SME is always at ease while paying the loan instalments.

Unsecured loans are turning extremely popular amongst small businesses communities. These are a few reasons why.

They help strengthen the business finances

A suitable business growth opportunity can present itself at any time, and therefore a small business needs to have access to adequate resources at all times. In case the cash flow situation is imperfect or there is a working capital requirement to meet routine business expenses, it helps to take an unsecured loan for a short period until the situation improves. This ensures that a small business will never find itself at a disadvantage when a new opportunity presents itself. Such loans from FinTech companies do not come with any prepayment penalty, and their tenure can vary from a few months to a couple of years.

Faster approval and quick access to funds

The digital revolution and the subsequent development of IT systems and processes have led to the rise of new age FinTech companies over the past five years. FinTech companies in India follow a completely different approach to the unsecured business loan market, as they use innovative technologies to profile, design and disburse loan products for small businesses. Even the application for an unsecured loan can be made online or through the mobile app, and all supporting documents such as bank statements, tax statements, previous loan statements, KYC documents, business receivables and other relevant documents can be uploaded in digital format. The use of advanced analytic techniques allows these companies to process a loan application within minutes. Upon approval, the loan amount is transferred to the borrower’s bank account within a few working days.

An unsecured loan product for every business

Extensive use of technology enables FinTech companies such as Capital Float to design new loan products that are meant to fulfil varying business needs. The loan product, Term Finance, is meant for small businesses that have been in operation for more than two years and have been doing good during that period. Such businesses can take business loans from ₹1 lakh to ₹1 crore for a duration of a few months to three years.

Supply chain finance is meant for small businesses that have blue-chip companies as customers. Such businesses can take up to 80% of the pending invoice value as an unsecured loan. The loan can be repaid either as monthly instalments or at one go upon receiving payments from the customer.

Unsecured loan products designed to support digital economy

Online Seller Finance is another loan product from Capital Float that is designed for businesses that generate revenue through e-commerce marketplaces. It provides up to 200% of the monthly sales volume as advance to such businesses. This money can be used to accelerate business growth online.

Similarly, merchants that receive the bulk of their payments through PoS terminals can avail up to 200% of their monthly card settlement value as advance through a customized finance product called Merchant Cash Advance. The loan amount can be repaid through the deduction of a fixed percentage from card settlements in the subsequent months.

Get loans on the most favourable terms

Capital Float offers loans at the most competitive rates. These unsecured loan costs can be brought further down by choosing the right loan product. Capital Float charges a flat 2% processing fee for all their loan products, and there are no other hidden charges. Another great benefit is the flexibility offered in loan repayment, which is linked to the business receivables.

Indeed, new age technology driven FinTech companies have eased the pain in procuring funds from the unsecured loans market in India, and small businesses can look up to them as a partner in their business growth.

At Capital Float, we fully understand the business challenges faced by small businesses and have therefore designed the unsecured loan products in such a way that businesses can focus more on business growth rather than on worrying about getting business finance. Our customised plans ascertain that you get just the right product that suits your unique need.

To find out the product that best suits your business, click here.

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Impact of GST on Your Day to Day Business

The Goods and Services Tax or GST goes live on July 1, 2017, but the process of consolidation and enrolment has already begun. Aiming to standardise indirect taxation in the country as far as goods and services are concerned, the GST will have a multi-fold and direct impact on the workings of businesses, whether large corporate houses or SMEs.

A quick overview of GST will help businesses understand its implications play to its advantage.

About GST

GST is a standardisation of the indirect taxation regime across the nation, leading to subsuming of many earlier state and central tax regime laws. Now, goods and services will be taxed under four basic slabs—5%, 12%, 18% or 28%—creating a new norm in indirect taxation. Traditionally, indirect taxes have had a very significant impact on businesses, particularly on their working capital. A number of taxes such as VAT, Service Tax, Excise Tax and others have resulted in huge contributions to the government and in effect, a huge expense for businesses. The hidden nature of indirect taxes, often spreading across multiple stages of the product cycle, has been a significant drain on working capital. Typically, the proportion of indirect taxes is significantly more in tax collections in developing countries, as compared to developed countries, where the share of direct taxation is significantly higher.

With the implementation of the GST, tax buckets are set to change, as also the way of doing business, as the cash outflow and timelines are about to be significantly affected. Working capital is the lifeline of a business, one that keeps it up and running. Especially for SMEs, it helps carry on day-to-day operations, which are critical to business continuity and success.

Here are some key GST changes that will directly affect your business and working capital flows.

  1. Input tax credit changes: As per the existing taxation system, any tax paid on a business expense that is not directly related to taxable sales is not available as credit. For example, any tax paid on advertising expenses will not be available as credit. GST has a new concept called the “Furtherance of Business” under which it allows credit of any kind of input for business to be “used or intended to be used in the course of or for the furtherance of business”. Now, a businessman can claim credit for tax paid on advertising services as well, giving the businessman significant leeway. The positive outcome is that cost of operations will greatly reduce, and net margins will increase, thereby bettering the working capital flow of the business, and perhaps the line of credit in the future.
  2. Claims due to inverted duty structure: An inverted duty structure is one where inputs are taxed higher than outputs i.e., raw material excise duty is higher (12.5%) than finished goods (6%), leading to a situation where the excess i.e., 6.5% is unused and gets accumulated. Under the current regime, this excess is not refundable. With the introduction of GST, businesses can now claim the unutilized input tax credit accumulated due to inverted duty structure. This, coupled with a speedy claims process, is a boon to boost the working capital of businesses.
  3. Timeliness of input tax credit: Currently, the input credit that a businessman avails is not captured in real-time, or in other words, in line with the current tax liability of the supplier. With GST, the input tax credit amount will depend on the compliance level of the supplier, making it compulsory for the supplier to declare the outward supplies along with the tax payment.  In a way, you might be responsible for your supplier’s failure to furnish valid returns. This may mean a dip in your cash flows since the input credit tax that you have claimed will be reversed and you will be expected to pay interest too, apart from losing out on the credit. GST will thus mandate businesses to manage their vendors very effectively. Review your current vendors and continuously monitor compliance levels to avoid this concern.
  4. Advance tax payments: Under the GST regime, tax needs to be paid on advance receipt dates. This is a major change, since so far this was applicable to only service tax under the current system. Now, if an advance is received against supply at a later date, the tax is liable to be paid on the date of advance receipt. The matter becomes worrisome since even though the business pays tax in advance, it cannot be claimed under the bucket of input tax credit immediately. It can be availed only once the goods or services are received.
  5. Taxation of stock transfers: The current VAT rules do not treat stock transfers as “goods” or “services”. However, with the GST, this changes—stock transfers are included under the category of goods/services and are taxable. This change will directly impact companies’ cash flows because the tax is to be paid on the date of stock transfer, whereas input tax credit can be availed of on the date of stock liquidation. How the working capital holds up in the interim period can be a crucial element to maintaining the working capital levels of the company
  6. The impact of location in offsetting credit: The prevailing Service Tax regime allows for centralised, pan-India registration of business. As a result, there are no restrictions on availing input tax credit across locations. However, under GST, different state entities need to be registered separately. These will be under varying jurisdictions depending on whether they come under the Central GST Bill, Integrated GST Bill or the Union Territory GST Bill. There are certain restrictions to offset a Central GST tax with an Integrated GST tax and so on. This may create difficulties in offsetting tax input credits across locations. For example, you may not be able to offset tax liabilities of one state branch with another state branch. Your liquidity may not be useful, even though it is available, creating an undesirable working capital situation.
  7. It is clear that businesses will need to exert more caution as they transition to GST. A detailed scrutiny of current tax commitments and the impact of the four bills depending on operational locations must be done at the outset to ensure healthy levels of working capital. It is also recommended to explore opportunities for availing working capital finance, or options for a line of credit by looking for the latest financing products such as those offered by Capital Float. Our customised, innovative loan offerings include term finance and online seller finance among others to ease working capital woes that SMEs routinely face. Click here for more.

Oct 24, 2018

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How to Get Collateral Free SME Loans for Your Business in India

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.

Related: What Makes Unsecured Business Loans Safe for Your Small Business?

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.

Oct 24, 2018

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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