Projections for the Future: Top 5 Small Business Trends in 2018

Thriving amidst difficult environments has never been easy for SMEs in India, but they continue to stand tall. Despite numerous challenges in the form of infrastructural constraints and lack of access to formal credit, they contribute to 8% of the GDP. Rightly called ‘the engine of growth’ for India, SMEs have scaled manufacturing capabilities, reduced regional disparities and balanced the distribution of wealth.

Small businesses are now being increasingly associated with innovation and employment, and the figures state likewise. The micro, small and medium enterprise(MSME) sector contributes to 69% of employment in India. With the growing penetration of technology into mainstream ecosystem, these industries are at the forefront of bringing the convenience of digitalization to the masses.

The Indian economy is expected to be a $5 trillion economy by 2025, and SMEs are cutting roads towards this goal. As we enter the first financial year post implementation of GST, some interesting small business trends are touted to play an important role for a smoother growth journey to global standards.

Here are the latest business trends that you can keep in mind while setting your objectives for FY 2018-19.

Business Trend 1: Rise of Online B2B Marketplaces

E-commerce marketplaces are gradually gaining momentum worldwide, and has branched out to B2B trading platforms. While this is still at an embryonic stage in India, there is no doubt that the potential it holds is huge. According to experts, the scope of the ecommerce B2B industry is six times bigger than the B2C industry, and is estimated to be worth $620 billion industry by 2020.

Companies such as Amazon Business, Alibaba, IndiaMart, Power2SME, etc. are popular online platforms that connect B2B buyers and suppliers to fulfill their business requirements. These digital platforms have helped small businesses surpass technical and geographical limitations to procure raw materials in bulk at reduced prices and also become official supply partners to large corporations. This is one of the hottest small business trends of 2018 that will present aspiring as well as budding entrepreneurs a level playing field with industry leaders.

Business Trend 2: Personalized Customer Outreach via Automated Tech

With the oldest of the millennials attaining 35 years of age this year, the target audience has shifted by a generation. For an age bracket that has been wrought in technology, this band of consumers need more than online communication. They seek a personalized line of contact when availing services from small businesses, with 60% of them choosing emails as a preferred way to establish this connect.

Since the millennial generation has the highest buying power in the market valued at $44 billion globally, this is one audience you don’t want to miss out on. You can target them by leveraging interactive videos, engaging images, and emails customized with these elements for varying demographics. The use of intelligent virtual communication applications will help you implement this in an efficient and cost-effective manner.

Business Trend 3: Easy Access to Business Credit with FinTech Lenders

The biggest hurdle for small business owners has always been financing. For a country with 50 million SMEs, there is an unmet credit deficit of a staggering $350 billion. Traditional lending institutions are limited by conventional underwriting that caters only to a certain strata of businesses. Lack of collateral, documentation and operational history have been crippling factors that prevented SMEs from qualifying for formal finance. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt.

But, FinTech lenders are shifting the narrative by leveraging technology and unconventional data points to provide affordable loans to small businesses as well as consumers. With customized credit products and zero collateral requirement, these digital financiers bridge the gap that had long existed in the market.

Business Trend 4: Big Data to Drive Operations and Decisions

‘Is Big Data too big for SMEs?’- is a question that requires intensive analysis, depending on the goals that define the small business and its operations. Many SMEs see big data projects as unapproachable and sophisticated, owing to the difficulties inherent in understanding huge datasets. However, studies reveal that a calculated use of big data has a colossal impact on the growth of small businesses and has been the chassis for many popular business models.

This business trend is expected to revolutionize the SME sector by speeding its pace of development. New-age digital lenders do finance technological incorporations if it shows a direct correlation to business growth, so you needn’t worry about the funds for investing in Big Data. Check out Unsecured Business Loans for more details.

Business Trend 5: Shifted Focus on IT Security

2017 saw one of the largest cyberattack worldwide, the WannaCry ransomware attack, that caused the encryption of data on computers running the Microsoft Windows operating system and risked the exposure of sensitive data of companies in over 150 countries. Though the attack was stopped within a few days of discovery, the total damages were estimated to be in billions of dollars.

The IT industry in India contributes to a key part of the country’s economy, a significant number of enterprises will begin to invest in dedicated security systems that focus on detection and response, a shift away from conventional systems that were based on prevention. Security enhancements offered by SaaS/Cloud based platforms have become more affordable for small businesses to establish a dominant architecture for data integrity management.

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Taxes Subsumed under GST & the Components of GST

With the Goods and Services Tax (GST) set to roll out on July 01, 2017, expectations and anxieties are high with individual taxpayers and businesses trying to gear up for a brand new tax regime.

Components of GST

To be able to make the most of the new indirect taxation law, taxpayers need to understand its components well.

The GST Council which was set up by the Central Government to execute GST implementation, has proposed a new tax framework-structure for GST.

First and foremost, GST represents a “One Nation, One Tax” outlook, which is necessary to do away with multi-tax regimes that lead to inefficiencies such as cascading taxes, levy of excise at the point of manufacturing and lack of uniformity in tax levies. Currently, Goods and Services are taxed under various disparate tax categories such as Excise Duty, VAT or Central Sales Tax, Service Tax (in the case of services dispensed) and Customs Duty (for imports). Some of these taxes are levied by the Central government, and others by the state government. A unified approach— GST— will help do away with these complexities by enabling a single tax regime right from manufacturer to consumer. It is important to know that GST is a destination-based tax i.e., the tax is credited to the taxation authority whose jurisdiction prevails at the place of consumption (also called the place of supply). Moreover, GST will be levied on value-addition, by allowing for input tax credit at each stage of the transaction chain.

GST Structure

GST will have four slabs of indirect taxation: 5%, 12%, 18% and 28%, with goods and services attracting any of these slab percentages depending on various factors such as being a luxury good/service. The current indirect tax structure will give way to a Dual GST model, with the Centre and States simultaneously levying GST on a common tax base, as follows:

  • Central GST Bill (CGST): For intra-state transactions related to supply of goods and/or services, levied by the Centre.
  • State or Union Territory GST Bill (SGST or UTGST): For the supply of goods and/or services in the States and Union Territories, levied by the States/Union Territories.
  • Integrated GST Bill (IGST): For inter-state transactions and imports related to supply of goods and/or services, carried out by the Centre.

Under this structure, the CGST and SGST/UTGST will be levied simultaneously on the same price or value. Here is an example of how this will happen: Consider a steel supplier who manufactures in Jharkhand and supplies steel to another company within Jharkhand. Let us assume the rate of CGST to be 10% and SGST to be 7% and the selling price of the steel to be Rs. 100. The supplier will charge the client a CGST of Rs 10 and SGST of Rs 7. The supplier needs to deposit Rs 10 in his Centre taxation account, and Rs. 7 in the State taxation account. Due to input credit facility, the supplier has the option of setting off the total payment (Rs 17) against the tax he paid on his purchases or inputs. However, these credit values cannot be mixed—for CGST-setoffs he can utilize only the CGST credit; for SGST-setoffs he can utilize only SGST credit.

Dual GST

A Dual-GST is particularly suitable for the Indian economy because in India both the Centre and States are assigned the duty of levying and collecting taxes. So far, the Constitution clearly demarcated the tax levying and collection duties of the Centre and State, with the Centre responsible for taxing the manufacture of goods, and the State responsible for taxing the sale of goods. For services, only the Centre was allowed to levy Service Tax. To override this segregation of power, and enable the smooth implementation of GST, a Constitutional amendment (Constitution Act, 2016) was made so as to simultaneously empower the Centre and the States to levy and collect this tax. With this amendment, the Dual GST regime will now align well with the fiscal federal protocols of India.

Taxes subsumed under GST

The following are the disparate taxes (levied by the Centre and States) which will be subsumed under the new dual-GST regime.

(A) Taxes currently levied and collected by the Centre:

  • Central Excise Duty
  • Duties of Excise (Medicinal and Toilet Preparations)
  • Additional Duties of Excise (Goods of Special Importance)
  • Additional Duties of Excise (Textiles and Textile Products)
  • Additional Duties of Customs (commonly known as CVD)
  • Special Additional Duty of Customs (SAD)
  • Service Tax
  • Central Surcharges and Cesses so far as they relate to supply of goods and services

(B) Taxes currently levied and collected by the States:

  • State VAT
  • Central Sales Tax
  • Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Taxes on advertisements
  • Purchase Tax
  • Taxes on lotteries, betting and gambling
  • State Surcharges and Cesses so far as they relate to supply of goods and services

The taxes to be subsumed were decided after intense debate and consideration of some core principles that were in line with the GST ethos. Each tax was first examined to ensure it qualified for indirect taxation and was related to the supply of goods or services. Moreover, a tax which was to be subsumed needed to be part of the transaction chain right from imports through manufacturing to the provision of services and the consumption of goods/services. Another important criteria to allow a tax to be subsumed was that the subsumation should lead to free flow of tax credit at Intra- and inter-State levels. Also, the revenue considerations of both the Centre and the State were taken into perspective while arriving at the final list of subsumed taxes.

Clearly, the change is huge, and the sooner consumers and businesses get familiar with the implications on Term finances, the better they will be equipped to benefit from the new GST reforms.

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Oct 24, 2018

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Working Capital Financing: Why It Is Essential For The Success Of a Business

India is on the path of robust economic growth. According to official figures, the economy was valued at $2.2 trillion in 2016, making it the world’s seventh largest economy in terms of nominal GDP. The Indian economy is expected to reach the $5 trillion mark by 2025, according to a report published by Morgan Stanley in February 2017. India seems to have all the right ingredients in place to achieve this phenomenal growth; the country’s millennial population is massive, there’s availability of cheap labor, the government’s policies are favorable, Indians have exhibited high adoption of the latest technological advancements and the SME segment is growing at a fairly healthy rate.

The SME (Small and Medium Enterprises) sector is critical to the development of the Indian economy. It contributed 40% of the nation’s exports and 45% of total manufacturing output in 2015. The segment’s contribution to India’s GDP is expected to grow from 17% recorded in 2010-2011 to 22% by 2020.

Despite these facts, the SME sector has witnessed some challenges with regards to financing. The need for cash to manage daily operations and the inability to access commercial finance have hindered the development of SMEs.

Why is Working Capital So Critical for Any Business?

All businesses need some funds to run their daily, weekly and monthly operations. Working capital is, therefore, essential for the smooth working of a business. The main reasons for working capital being so important are:

Enhances Solvency: Working capital aids a business to operate smoothly and meet all its short-term expenses, including purchasing raw materials, payment of salaries and meeting overhead expenses. Some of these payments cannot be delayed. Having sufficient liquidity helps the uninterrupted flow of production; thus, maintaining the solvency of a business.

Increased Goodwill: When a business is able to promptly meet its regular expenses and pay salaries on time, it generates goodwill, not just internally with employees but also with suppliers and distributors.

Uninterrupted Supply of Raw Materials: Quick payments ensure regular supply of raw materials. Suppliers of raw materials are usually apprehensive about small businesses being able to make the payments and do not offer a suitable credit period. The inability to pay suppliers can result in production coming to a standstill.

Improved Ability to Face Any Crisis: Apart from the smooth functioning of business operations, working capital ensures that any financial emergency can be handled with ease. Sometimes businesses face an unforeseen event, like an order being rejected, unfavorable weather conditions or the unavailability of a particular resource. A business that has sufficient liquidity can cushion itself against such situations. Thus, the financing of working capital defines the financial health of a business and how smoothly it can operate under different circumstances.

Why is Working Capital Finance So Difficult to Get for SMEs?

The most critical challenge that even profitable SMEs face is the lack of working capital, given their inability to access commercial finance. Public sector banks are burdened by bad debt loans to offer any support to these companies. Traditional banking institutions are apprehensive about offering commercial finance to SMEs and place stringent eligibility criteria for approval. Most of their loans require collateral to be furnished even for financing of working capital.

The greatest problem is that the loan application and approval process of traditional banking institutions is so tedious and prolonged, that SMEs find it excruciatingly painful to access these options. They may have to wait months only to have their loan application rejected. SMEs, therefore, look for alternate sources for financing of working capital and turn towards unorganized moneylenders who charge exorbitant interest rates.

Working Capital Financing Needs Met By Technology

SMEs need financing of working capital. They need swift and easy availability of commercial finance, without the need for extensive paperwork and collateral. The solution finally arrived in the form of FinTech lenders like Capital Float.

The FinTech segment has revolutionized the financing of working capital for SMEs by using cutting-edge technology in the loan application, underwriting and approval processes. This enables the disbursement of funds to SMEs within a matter of days.

Types of Working Capital Financing

There are a number of flexible, short-term and collateral-free loans offered that can be used to service new orders, purchase inventory and maintain cash cycles. These include:

Term Finance: This is ideal for SMEs particularly in the manufacturing and distribution space that need funds to meet operational needs or to expand and diversify the business.

Online Seller Finance: This is best suited for businesses that sell their products on leading online marketplaces. Capital Float has partnered with India’s largest marketplaces, like Amazon, PayTM, Snapdeal, Myntra, Shopclues and eBay to offer eCommerce sellers customized working capital finance.

Pay Later Finance: This product offers a credit facility and suits SMEs that have to regularly replenish their inventory. This revolving credit facility enables a borrower to make timely supplier payments from a predetermined credit amount. This amount can be reset upon repayment and is made available for further use.

Merchant Cash Advance: This credit solution is for businesses that receive payments via credit / debit cards via PoS (point of sale) machines. Capital Float has partnerships with multiple PoS machine vendors such as Pine Labs, Mswipe, ICICI Merchant Services, MRL Posnet and Bijlipay, expanding its reach to merchants across the country.

Supply Chain Finance: This commercial finance product allows businesses to use their invoices or accounts receivables as the basis to gain access to liquid funds.

SMEs are of strategic importance to the Indian economy and deserve a business climate in which they can thrive and grow. The financing of working capital made available by FinTech lenders will help the SME segment to move forward and contribute significantly to the growth of the Indian economy.

Oct 24, 2018

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What is Capital Float’s Pay Later?

Business owners frequently face working capital challenges. Supplier payments are a constant concern for SMEs. In manufacturing, trading and services, where lead times are significantly high, businessmen often finance operations by resorting to informal channels of credit. Traders who deal with shorter sales cycles tend to miss out on large orders as they are unable to pay their suppliers large sums of money to make bookings.

Capital Float’s Pay Later works exceptionally well in these cases. Pay Later carries a pre- defined credit facility which is unique to each applicant depending on various factors, for instance, industry the applicant operates in, scale of the applicant’s business and some basic financial metrics. You can make multiple drawdowns from the assigned balance and pay interest only on amounts utilized. By repaying the amount used, you reset the balance for further usage, making Pay Later a flexible, rolling loan product.

For example, if you’ve been provided a credit facility of Rs 1 lakh, you can make up to 4 drawdowns of Rs 25,000 each. Upon your first drawdown, you have a balance of Rs 75,000. You will be charged interest on the drawdown (Rs 25,000) and not the entire amount (Rs 1,00,000). By repaying the amount used, your balance will be restored to Rs 1,00,000.

With Capital Float’s convenient mobile app, you can use this zero-collateral loan product from absolutely anywhere. To make payments, all you need to do is take a photograph of the invoice with your mobile phone and upload it using our app. The vendor is paid on your behalf within 24 hours of the upload.

Features

Pay Later is an incredibly fast and paperless access to credit that works along the similar lines of a credit card. The functionality of this product as the name suggests – use the facility now and simply pay later. Following are the salient features of the product:

1. Get credit of up to Rs. 25 Lacs

With Pay Later, you are eligible for credit of up to Rs. 25 Lacs, which ensures that you’re never short of funds.

2. Easy, hassle-free online application procedure

The entire procedure will take just 10 minutes of your time. To get started, you can sign-up on Capital Float using your desktop, laptop, tablet or smartphone. Fill a simple online application form and submit the requested documentation to conclude the process.

3. Get approved in 3 days

Where traditional financial institutions take up to 8-12 weeks, we assess your eligibility and offer you a customized credit amount within 72 hours.

4. Convenient repayment at the end of 30/60/90-day loan term

Pay Later offers three flexible repayment plans that work in accordance to your business cash flows. You can choose to repay loan amounts at the end of 30/60/90 days from the date the loan is utilized. This way, you’re never bogged down by hefty monthly instalments.

5. Pay distributors/suppliers via Capital Float’s convenient mobile app

Make payments with just a few taps on your smartphone via our mobile app that you can download for free from Play Store and App Store. The payment is confirmed instantly, and reaches the vendor’s account in less than 24 hours.

Benefits

1. Zero-Collateral

Pay Later is a collateral-free loan product, which means you don’t need to pledge your property or assets to avail the loan. Your credit amount is determined by the potential and profitability of your business.

2. Flexibility in drawdowns:

Pay Later allows you to use a portion of the total amount any time you wish to. For instance, if you have a credit facility of Rs. 10 lakhs, then you can utilise the full amount or a fraction of it at any given time, depending upon your requirement. The user-friendly mobile app efficiently keeps track of your balance, so that you can manage repayments accordingly. You can also draw amounts as low as 25,000 rupees, hence making this product extremely convenient to use.

3. Interest applicable only upon drawdown

You’re required to pay interest only for the amount you’ve utilised and not on the entire credit amount assigned to you.

Click here to read about the features and benefits in more detail.

Eligibility and Documents

The eligibility criteria for Pay Later is extremely simple. All you need is a small list of documents at the time of application:

Eligibility

  • Applicant’s business to have at least 2 years of vintage
  • Applicant must purchase from a reputed supplier
  • Applicant must have 3 months of transaction data with the supplier

Documents required

  • Audited financials for the last 2 years
  • VAT returns and bank documents for the last 6 months
  • KYC documents of the applicant as well as the organisation

How to Apply

Applying for credit via Pay Later involves a simple four-step procedure. As long as you have a computer or smartphone and a good internet connection, you can apply from anywhere. Here are the steps involved:

  1. Apply & get empaneled

Sign up on Capital Float’s website to kick-start the procedure. Fill out the form with your personal and professional details, and click on submit.

      2. Upload the necessary documents

The next step involves uploading the requested documents. This includes business vintage of two years along with some basic KYC documents.

     3. Receive instant approval

Receive approval on your application within hours. In less than 3 days from the time of application, your credit facility will be set up for your use.

    4. Credit facility ready for use

Once your credit amount is determined, you can start using Capital Float’s mobile app to create tranches by uploading invoices and making vendor payments.

Fees and Charges

At Capital Float, we conduct business in the most transparent manner possible. Therefore, you’re only obligated to pay a processing fee of up to 2% for the loan. Rest assured, there are no hidden or pre-closure charges that pop-up during or after your application procedure.

Oct 24, 2018