“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.
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.
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.
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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.
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What is Working Capital?
Working capital is the difference between the total number of assets and the total number of liabilities in a company. This amount is spent on executing day-to-day operations in a business. As a result, it is used as an index to measure the health of a company. Enterprises with high working capital are often strong businesses.
What are the Uses of Working Capital?
In most situations, working capital is used to run operations. A well-managed business will also use it’s working capital to achieve growth. For instance, an online seller would spend to add a new type of product to his portfolio. A retailer may liquidate funds to increase his store size by adding a new section to his outlet.
Other uses of working capital include:
• Equipment and inventory purchases
• Hiring, salary payments and employee training
• Unforeseen expenses
What are the Outcomes of Low Working Capital?
Responsible financial management may help companies secure higher levels of working capital. On the contrary, poor management of capital could result in the following issues:
• Bankruptcy risk: In the case of negative working capital, SMEs use money received from creditors to finance business operations. Businesses run the risk of bankruptcy due to the lack of sufficient income to counterbalance the expenditure.
• Lack of investment opportunities: Investors are less likely to consider companies which regularly have low or negative working capital. This demonstrates that the company is not being run effectively.
• Missed growth opportunities: With large amounts of positive working capital, businesses will have money to spend on pursuing growth. With negative or low working capital, businesses may find it difficult to capitalize on investment opportunities. Low working capital could have stifling effects on the ambitions of any businessman.
• Trade discounts: Many suppliers will offer substantial discounts if they are paid on time. Low or negative working capital can make it difficult to meet payment obligations which, effectively, increases the cost of inventory.
What are the Ways of Accessing Working Capital Finance with Capital Float?
At Capital Float, we offer a wide range of financing options for small and medium scale businesses. By providing quick and easier access to funds and with flexible repayment options, we can give businesses the right financial support to help them achieve their next milestone.
We offer Online Seller Finance to e-commerce sellers who operate on online marketplaces. Through a simple online process, the seller can apply for a loan and receive funds in three days. The loan tenure ranges between 90-180 days and is repaid on a biweekly basis. This loan is ideal for sellers who are looking at expanding into other marketplaces, increasing their product portfolio or purchasing higher volumes of stock.
Term Finance is applicable for traditional businesses that have been operating for three years. The loan tenure varies between six months to three years. Small scale manufacturers, retailers and distributors can use this loan to meet short-term investment requirements and finance inventory purchases.
Invoice Finance helps SMEs convert their invoices into cash, that can be channeled into financing business operations. This loan product has an exclusive feature of one-time bullet repayment mode, which might suit the cash-flow needs of several SMEs.
We also provide Merchant Cash Advance which will interest vendors using point-of-sale machines with consistent card settlements. Merchants can receive working capital finance of up to 150% of their monthly card swipes within three days of the loan application.
Our unique product called ‘Pay Later’ is a rolling credit facility, that enables the borrower to make multiple drawdowns within a predefined credit limit. The borrower pays interest on the utilized amount and not on the entire limit. By repaying the amount utilized, the borrower resets the credit limit, thereby instantly availing the facility in whole. Click here to read more about ‘Pay Later’. You could read about the product features by clicking here.
Oct 24, 2018
Like most college friends, Ankit, Murthy and Kumanan lost touch with each other soon after graduating. Unlike most friends who lose touch with each other, they ran into each other while vacationing in the same resort at the same time to celebrate new years’ eve. While their career paths had diverged 15 years out of college, they were soon reminiscing the good old days with an equally old bottle of scotch. After rewinding and replaying the past a few times, the conversation caught up with time and they started talking about work.
After several years of working in a traditional bank, Ankit got bored and joined a new age digital lending company as the head of credit. Kumanan worked at large garment manufacturing units in India, Bangladesh and China. Watching the industry disappear around him, he sensed opportunity and had recently started his own T-shirt design and manufacturing company where he was riding the e-commerce boom and sold most of his inventory online. He had ambitions of starting his own brand soon. Murthy had joined his father’s business and expanded a single department store into a chain across the entire city. He also supplied snacks, beverages, toiletries, cleaning equipment to the largest software company of his city and they were constantly demanding that he supply paper, ink and most other consumables as they grew and expanded.
With the scotch taking care of any and all inhibitions, Murthy and Kumanan’s frustrations surfaced and they started talking about how they love their work, the sense of independence, the sense of control over their destiny but how they absolutely hated dealing with lenders and banks. In their mind, Ankit personified this opaque, insensitive, slow lender and they wanted him to explain why all their past loan and credit card applications had been declined. The barrage of questions targeted at Ankit reached a point where Kumanan even wanted Ankit to explain why his voter ID had the wrong address! Ankit smiled and surprised them by saying he shared their frustration of being unable to provide the right loan to the right person at the right time in his old bank and that he also moved to a new age digital company with the intent to redefine lending in India.
Ankit then asked Kumanan and Murthy to explain how they went about getting a loan and got the answer he expected. Like most business owners, they did not have the time to deal with multiple banks and they used an agent to help them get loans. While they did not particularly like their agents, they did send a guy over to their office to fill forms, collect documents, organize bank discussions and get them their funding without them having to figure out every bank, product and process. In addition, Murthy and Kumanan both had multiple suppliers who they had worked out individual credit terms with. They also admitted that whenever they needed urgent money or large sums that banks would not provide, they got it from local moneylenders at exorbitant terms. It was quite beyond them as to why a bank would think they cannot repay a larger loan when they were clearly taking multiple loans and successfully paying them off.
Ankit explained that traditional banks and lenders had very limited scope for loan officers to think out of the box and act beyond established policies. Banks did not have significantly different products or processes and ended up providing 2-3 year lump sum loans that were not large enough for Kumanan or Murthy. They always ended up spending time allocating money across various activities such as expansion, payroll, supplier payments, seasonal demands, online vs offline sales where payment cycles were vastly different. The advantage of Ankit’s new age company was three fold: custom products designed to address specific financial needs of businesses, high speed customer experience with minimal documentation, and low pricing due to product features that enable non-conservative underwriting. Kumanan and Murthy’s curiosity was piqued and they wanted to know more.
Ankit asked Kumanan to imagine a world in which he downloaded a mobile app, added all his suppliers and had a line of credit with standard terms available that he could use to pay any supplier any time. He could pick his repayment period and the payment goes through immediately! No need to haggle with each supplier and the credit line grew with usage and regularity of payments. Since he sold online, he also had the option of picking a tailor made e-commerce loan where repayments were mapped to the payment cycle and a transparent cash flow control mechanism ensured that many more people qualified for affordable large loans. These loans even adjusted themselves for seasonality of his business and he could request top-ups as and when he needed them. Kumanan was very impressed that these products were not restricted to his imagination but were actual products that Ankit was able to provide via his new age digital lending company.
Murthy wanted to know if there was something for folks like him who did not sell online. Ankit told him that instead of taking long term loans that may not be utilized all the time but keep accruing interest, Murthy should opt for an invoice financing loan wherein all his supplies to the large software company could be funded as and when they make a purchase from him. That way, he does not have to plan for their expansion and is confident of the right amount of money at the right time and the right rate. Murthy agreed that while this product did sound interesting, he preferred if somebody came to his office to explain the product and handle the paperwork. Ankit mentioned that his company did not have any “paperwork” since most customer information was collected digitally but he is happy to send over a person to Murthy’s office to help guide him through the product and process. Murthy then wanted to know why he could not get a larger loan and Ankit explained that lenders and banks are happy to lend when they have some visibility into the cash flow of a business. As an example, Ankit’s company had recently launched a merchant cash advance product that collected daily payments directly from the credit card machines that Murthy had in all his stores. Typically, it was a lot easier to qualify for such a loan, there was minimal documentation and there was no need to think about payment due dates!
Having given up hope of ever hitting the gym, Kumanan and Murthy were happy with their new year resolution of trying out custom financial products from new age digital companies and keeping in mind that old may not always be gold!
Tushar has deep expertise in credit, risk management, portfolio management and analytics gained during his 10-year career with HSBC and Capital One in India and the US. Most recently, he worked on a small business credit card portfolio purchase for Capital One including business development valuations, due diligence, system integration and credit policy development. Tushar graduated from IIT Madras with a B.Tech in Electrical Engineering.
Tushar heads Decision Sciences at Capital Float.
Oct 24, 2018
The Goods and Services Tax (GST) is the single biggest reform in India’s indirect tax structure since the liberalisation of the economy in 1991. Through this reform, the government has integrated the previously disparate segments of the Indian economy and has truly begun the process of creating one market for the entire nation. The idea of a single tax on the supply of goods and services, from manufacturing to delivery to the final consumer, has eliminated the need for sellers to register with multiple tax platforms and file multiple tax returns.
GST is going to have a major impact on e-commerce in the country. Apart from consumers, this trade segment has two key players: the e-commerce marketplaces and the sellers. While e-commerce marketplaces such as Flipkart and Amazon are required to make necessary adjustments to their operations, it is the impact on e-commerce sellers, represented by the thousands of retailers that sell through the marketplace that requires intense scrutiny. Through this blog, we assess the impact of GST on e-commerce sellers and the steps such businesses need to take to ensure regular compliance.
GST-induced taxation changes for e-commerce sellers
Presently, GST appears to be an assortment of compliance guidelines. The enhanced regulatory requirements might take a seller’s focus away from operations for some time. However, GST as a single tax for products across India will be beneficial for all e-commerce sellers in the long run because of the aspect of transparency in trade brought forth by this new indirect tax reform. Let’s discuss the impact of GST on an online seller’s operations:
1. Increased reach of e-commerce sellers: GST has opened avenues for small and medium sized e-commerce sellers to compete with larger enterprises at a national level. Previously, these sellers were limited to operating within the confines of one state due to the looming tax rates of trading across multiple states. By unifying the taxation, e-sellers need not be burdened by multiple taxes while selling to consumers across various states.
2. Compulsory registration required: The government has specified a turnover threshold of Rs 20 lakh for registration under GST. This has been relaxed to Rs 10 lakh for north-eastern states. However, for e-commerce sellers, registration is mandatory, irrespective of whether they fall below the turnover slab of Rs 20 lakh or not. Removal of the threshold for registration will help bring more online businesses into the sphere of taxation.
3. Ineligible for Composition Scheme: E-commerce sellers are not eligible for the Composition Scheme either. The Composition Scheme permits businesses with a turnover of under Rs 75 lakh to file quarterly returns instead of monthly and pay tax at a low rate of 2%. Although this might seem to be a disadvantage for e-commerce sellers, the number of documents required to file for the Composition Scheme is relatively higher, reducing the burden of document collation on the seller.
4. Tax collected at source (TCS): E-commerce marketplaces are required to deduct 2% TCS on the net value of sales as the GST liability of the seller and deposit it with the government. Further, the sales reported by both the e-commerce marketplace as well as the seller need to tally at the end of each month. Discrepancies, if any, will be added to the turnover of the seller and they will be liable to pay GST on the additional amount. This measure will weed out fraudulent sellers and shall subsequently build trust between marketplaces and sellers.
5. Filing of tax returns: The e-commerce sellers need to follow the same process that is followed by brick-and-mortar retailers. Form GSTR-1, containing details of outward supplies, needs to be submitted by the 10th of every month. The seller will receive Form GSTR-2A by the 11th of the same month, which contains details of the tax collected by the e-commerce marketplace. They then need to review and submit Form GSTR-2 by the 15th of the month. Discrepancies in supplies are to be submitted through Form GST ITC-1 by the 21st of the same month. This would require businesses to be particular about tallying data coming from different sources before filing returns. Taking the help of a professional GST services provider in meeting compliance has become a requisite in light of these regulations.
6. Increase in Credit: The GST law has established ‘input tax credit’ to cover goods or services used by a company in the course of business. E-commerce sellers need to establish a direct relationship between the input material and the final product/service is eliminated. Much like other registered entities under GST, e-commerce sellers too can now avail input credit.
7. Refunds under cash on delivery: Consumers extensively opt for ‘cash on delivery’ in India and such sales witness return of orders to the tune of 18%. The reconciliation process for refunds takes around 7-10 days. Initially, there might be confusion around generating refunds for cancelled orders where taxes have already been filed.
The impact of GST on logistics and warehousing
With the Government having done away with multiple layers of tax, GST is bound to reduce costs incurred in e-commerce logistics. This reduction, according to some estimates, could be as high as 20%. Also, with state-level taxes being subsumed under GST, e-commerce platforms can reduce warehousing costs as they need not maintain huge warehouses across multiple locations in India. Such warehouses were earlier operating below their rated capacities, adding to inefficiencies and the selling price of products. Now, e-commerce marketplaces can opt for maintaining a few warehouses at strategic locations. These well-maintained logistics hubs will be able to attract FDI inflows and lead to an increase in overall efficiency in operations. With the free movement of goods and services and a uniform tax rate across states, e-commerce sellers will be free to transport across different locations in India.
The implementation of GST stands to benefit e-commerce sellers, as due to the elimination of entry taxes and faster movement of goods vehicles across states, the last mile delivery costs will come down. This benefit can be passed on to customers. Also, e-commerce marketplaces are now free to source goods from SMEs across India and not just limit themselves to local players across states. They were compelled to do this earlier to save costs on heavy inter-state taxation. Such a move will give impetus to the SME sector in India and foster healthy competition among SMEs, thereby improving the quality of products and services available in India.
There is no doubt that e-commerce will be subject to increased tax compliance and subsequently increased costs. However, in the long run, GST should level the playing field for e-commerce sellers, thereby streamlining their operations and setting the tone for increased business growth
Visit our blog to read more engaging content on GST.
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Oct 24, 2018