The health of any business, including a manufacturing organisation, is determined by its cash flow.
It is not uncommon for the expenses of small and medium enterprises (SMEs) to exceed their income in the initial years. At times, they may have to price their products/services low to attract new buyers. The purchase of new equipment and quality raw materials can also increase the expenses for businesses.
Temporarily holding the operations is not a solution to cash flow problems because, with this recourse, the enterprise will not only suffer a revenue loss but also bear the burden of its fixed costs. These include amortisation, depreciation of assets, insurance premiums, property rent, taxes and utility bills.
A business that has planned to grow in its industry can keep fuelling its production processes and also invest in new manufacturing technologies by using an unsecured business loan for manufacturer.
As the name suggests, an unsecured SME loan does not require the borrowing entity to pledge any collateral. With a secure digital process, it is also easy to request for this funding.
How to apply for manufacturer/machinery loan
A FinTech company is one of the most favourable sources of an unsecured business loan for manufacturer. FinTech lenders often are non-banking finance companies (NBFCs) that use digital techniques to receive applications and disburse loan amounts in minimum time.
The advent of these organisations has made the credit industry more competitive. The start-ups that cannot afford to borrow from established banks due to high collateral requirements and other eligibility constraints find it easier to get an MSME loan from a FinTech firm.
All kinds of manufacturing concerns in India, including companies registered as a sole prop, partnership, LLP and Pvt Ltd can apply for these collateral-free loans.
Typically, a digital loan application available on the FinTech’s official website can be filled in less than 10 minutes from any secure Internet connection. To substantiate their credentials, the borrowers also need to upload the digital copies of ID proofs, PAN cards and the documents validating their business earnings. Such documents may be a balance sheet, recent profit and loss statement, the copies of processed income tax and GST returns and the papers comprising information on the ownership of the business.
Within minutes of the application submission, the FinTech sends its decision on the MSME/SME loan applied for, and if this is an approval, the approved loan amount is transferred to the bank account of the borrower in 2-3 business days.
Types of Business Loans for Manufacturers
An unsecured business loan for manufacturer could be a loan to buy machinery or working capital loan. The latter brings funds to finance day-to-day operations and for maintaining the current assets of the company at a higher level than the current liabilities.
An organisation can also borrow any amount – from a few lakhs to over a crore – to start a factory at a new location or to add more product lines to the business. In addition to these, FinTech companies can be approached for a loan to buy raw materials used in the production processes.
It is good to mention the exact purpose of the loan while filling the application because that helps to choose a customised loan product at the right rate of interest.
Understanding the Fee for Loan
While looking for loans online and making comparisons among the available options, prospective borrowers often check only the interest rates. Lured by a low interest rate, they also end up signing up for loans that later prove more expensive.
Some lenders do not mention the total fee of their loans clearly on websites and in brochures. It is talked about only in the Terms and Conditions in tiny letters, which is why it gets overlooked by borrowers. In applying for a raw materials/machinery loan, therefore, a manufacturer must also ask upfront about the loan processing fee, loan insurance premium if any, the involved legal cost, documentation fee and any other charge that would eventually drive up the repayment instalments of the loan.
Although the interest rate quoted by a FinTech company appears higher than the heavily advertised ‘low interest rates’, it makes for a better option. This is because in addition to their interest, FinTechs have a low processing fee of no more than 2% of the borrowed amount, and they do not levy additional charges such as insurance and documentation fee. A FinTech company can afford to do away with such amounts because most of its processes from application to loan disbursal are conducted online.
Ease of Repayment
Bank loans and funds lent by other conventional sources are usually paid in equated monthly instalments (EMIs). However, at times business borrowers including manufacturers can afford to pay back their borrowed sum sooner than the predetermined schedule. The flexible repayment options for an unsecured loan provided by a FinTech company make them suitable sources of such funding.
Conclusively, though making the final choice on a loan source is the prerogative of the borrower, the multiple benefits of unsecured loans put them in a more favourable position than secured loans. Why indeed would anyone want to bring in additional documentation and hypothecate their business assets when credit on easier terms is available from an alternative lender?
In the business of manufacturing, and particularly in the production of perishable items such as eatables that are usually undertaken by SMEs, time is money. Buying of machinery and required raw materials cannot be delayed even if the general cash flow is reduced at any point in time. The gap in cash reserves can be filled by an instant, unsecured loan.
At Capital Float, we have designed an array of unsecured loan products to suit the needs of manufacturers and other businesses. If you have felt the need to inject more funds into your operations, feel free to contact us for the financing that will serve your interests.
Our customer service reps will also answer any of your queries pertaining to your loan application.
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