All You Need to Know about Business Loans for the Service Industry: Must read for SMEs and MSMEs

In the past ten years, India has seen a growth in the number of start-ups coming forward to offer customised solutions in the fields of education, hospitality, travel, transport, healthcare, entertainment, marketing, e-commerce, waste management and consulting. Most of them, however, start with modest funds. They also deal with the challenges of validating their R&D, finding profitable markets and managing office administration costs and overheads.

It is also a common for small and medium enterprises (SMEs) in the service segment to experience their initial expenses being higher than their revenue.

Another problem encountered frequently is that while a business may be prompt at paying the bills raised by its suppliers and utility companies, it may not have customers who pay on time. Even though Accounts Receivable is an asset for any organisation, it gets converted into cash only at a later date. How then should such a business fund its current expenses and keep fuelling its operations? The answer lies in an SME loan, which is the best resort at this point.

Taking an SME or MSME loan is also a wise decision for an enterprise that has planned its next step towards growth or wants to invest some funds immediately in utilising a new business opportunity.

What kinds of loans are available in the market?

The service industry has numerous sub-domains, and a business loan for service company are provided by banks and non-banking finance companies (NBFCs).

The potent ability of digital NBFCs to offer unsecured business loans have made them a competitive source of finance for micro, small and medium enterprises. With a lending model facilitated by digital technology, these companies are also known as FinTechs, and they offer bespoke credit products for organisations providing professional solutions.

Your business loan for service company could be a working capital loan, invoice finance, credit for expanding the business or any other tailored loan for professional services.

A Working capital loan is usually taken to fund the daily operations and cover expenses such as wages, purchase of equipment or to manage entries on accounts payable. These are short-term loans that help businesses to stay focused on their growth.

Similar to a merchant cash advance, invoice finance is another popular SME loan where the lender advances money against the unpaid account receivables of the borrowing business. If you have raised bills to some of your clients, and they are yet to be paid, you can use the same to get a loan from a FinTech company.

Loans can also be used for business expansion and opening new branch offices or shops. Doctors who wish to start more prominent clinics, retailers who want to add more shelves in their shop or to purchase the adjoining premises to expand, and other entities that seek a business loan for service company growth can approach a FinTech lender for quick funds.

Can these NBFCs provide adequate amounts to suit your requirements?

A loan application requires you to state the purpose of the funds. It is good to have a precise idea of the amount to fulfil such business needs, and for this, you should check the exact market costs of the assets that you plan to buy with the borrowed amount.

As an example, if you are taking a working capital loan to buy motorcycles to facilitate the courier delivery services offered by your company, find the price of these vehicles and enter the same amount in your loan application. While there are no rules against requesting a more substantial sum, it is good not to go overboard. This prudence will help you in avoiding higher EMIs.

The amount that you can get on business loan for service company may range from a few lakh rupees to almost a crore. With such a broad scope for funds, the requirements of most SMEs are conveniently met.

How to apply for a business loan: The Process in General

To avail credit from conventional sources, you generally have to visit the lender’s office at least once and discuss the complete procedure. You may be asked to submit multiple photocopies of ID proofs and business financial health documents.

An MSME loan from the digitally operating FinTech company, however, is availed on much easier terms.

While the eligibility criterion differs from loan to loan, it is accommodating enough to include a high number of businesses. FinTechs only need to be sure of the repaying abilities of their borrowers, for which they ask for at least one year of successful operational history.

Owners of any Pvt Ltd, Prop, or LLP (limited liability partnership) company can check their eligibility and apply for their business loan online. They merely need to visit the website of the FinTech lender and fill in the application digitally. Remember that the portal of a genuine lender will be encrypted with a valid security certificate, and the URL will start with an ‘https’ prefix.

Since it is a digitized process, the upload of soft copies of documents is enough to verify the authenticity and eligibility of business for the funds. Among other things, the latest copy of tax returns may also be required.

It does not take long to know the status of your application. You will learn of the lender’s decision in minutes, and for every approved loan application, the amount is disbursed in 2-3 working days. It is deposited directly in the business bank account.

Loan costs and repayment

FinTech loans are offered without hidden overhead charges such as legal fee, loan insurance premium, documentation charge, commitment fee and other miscellaneous dues.

This implies that you only pay interest and a nominal loan processing fee along with the principal in your EMIs. Additionally, the terms of repayment are flexible, and instalments can be varied as per your business earnings.

While availing of a loan to solving cash crunch, SMEs can finance their business strategies without hypothecating any valuable asset to a lender.

Capital Float has adopted a digitally refined lending framework to enable the growing number of SMEs in India to easily procure the funds they need for their ambitious plans. As an online platform offering funds for various business requirements, we have trimmed the formal loan issuing process to make it stress-free and quick for businesses.

[maxbutton id=”5″ url=”https://safe.capitalfloat.com/cf/default/register?utm_source=blog&utm_medium=web” text=”Apply for Unsecured business loan” ]

 

To get more information on loans for specific business types, please visit our website or call us at 1860 419 0999.

 

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Capital Float partners with Payworld to boost business of kirana stores in India

Capital Float, the largest digital lender in India, has partnered with Payworld to provide kirana store owners with convenient financing options, enabling them to expand business operations. Small retailers are often underserved by traditional financial institutions because of their limited credit history. These retailers can now avail hassle-free working capital from Capital Float, which will help them manage inventory and cash flows with added scalability.

There are more than 12 million small retailers in India. Many of these businessmen put decision-making on hold because of traditional credit barriers. Through this partnership, Capital Float will provide small retailers with collateral-free loans, which will help to exponentially increase their capacity to do business on the Payworld platform. Once the loan is approved, the retailer can request for funds using the Capital Float mobile app and the funds are disbursed within 10 minutes.

“Due to the lack of established lending norms and consequent delay in financing activity, existing and new players in the retail space have lesser access to credit, which affects their growth and expansion plans”, said Gaurav Hinduja, Co-Founder, Capital Float. “With Payworld, we have simplified the lending process so that neighbourhood kirana stores are able to fulfil their financial needs and better service their customers,” he added.

With India becoming digital, Payworld helps customers in remote locations with limited access to electronic payment methods, perform daily transactions like booking bus tickets or paying mobile bills via Payworld’s network of retail points, which includes kirana stores. A proprietary algorithm developed by Capital Float uses non-traditional, surrogate data sources, including each retailer’s performance on the Payworld platform, to build a personalized credit profile and provide customized finance options to the retailer. In the long term, this will also develop an official credit profile for these retailers, thereby increasing their chances of availing credit products from traditional financiers.

“In keeping with our business philosophy of ‘Making Life Simple’, we have partnered with Capital Float to provide the retailers in our network the support they require to boost their business. This is critical in building retailer loyalty to our platform, giving them the confidence to increase the number of transactions, positively impacting revenues for them and us” said Praveen Dhabhai, COO , Payworld.

Click here to read the full press release on The Economic Times

Oct 24, 2018

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Making SMEs Loans a Breeze With Capital Float – ProductNation

Interviewed by Kritika Prashant

Typically, choosing to finance the SMEs looking for working capital loans, is not easy. First, the SMEs have smaller ticket size. Then they expect quick service and have high operational costs associated with it. ProductNation interviewed Shashank Rijyasringa and Gaurav Hinduja who started Capital Float in early 2013, a digital finance company that serves the loan requirements of SMEs in India.

Shashank having worked with McKinsey and Bain, has a background in creating, and packaging financial instruments. Gaurav on the other hand had grown and sold his family business before they met at Stanford as classmates.

“We were looking to address financial inclusion. We observed how the fin-tech space was being disrupted in US and China, and saw the huge opportunity in India. With 48 million SMEs, second just to China, with 50 million, India needed lenders who would tailor their offering to the needs of the customers. The rate of interest by the banks was much higher than expected. Also, the loan disbursement ate up a lot of time. So this need was largely catered to by the informal sector”, says Gaurav.

Registered as an NBFC with RBI, they started with an instrument for invoice financing (building loan product against invoice of blue-chip companies). The duo gradually evolved their products to provide working capital loans for SMEs. They developed underwriting models which address the specific scenarios of the SMEs.

“There are 2 broad categories of sellers coming up on eCommerce portals. First are those who sell on platforms like Zovi and Myntra, where the sellers are also the manufacturers. Other category includes retailers who sell on sites like Snapdeal and Paytm. They generate a huge demand for loans available at short notice periods with minimum hassle. That is where we found our sweet spot”, shares Shashank.

Here are some experpts from the interview:

How did you overcome the problems of traditional lending?

SR: “Firstly, our experience came in handy. My in-depth knowldge of micro-financing, packaging and selling loan instrument meant we could build the right services. Gaurav with his experience of running a business out of India, knew how to deliver the services we wanted to build.

Secondly, we met with our customers to understand what their problems really were. To a small business owner, every hour spent off the floor is an hour wasted. We came up with innovative methods like allowing same day approvals and providing loan facility over phone and laptop. These businesses needed greater accessibility and straight-forward procedures. They wanted someone who could understand the value of their time.

Third, and definitely the most crucial point was that we adopted trial and error method. Like any startup, we didn’t know exactly how things would work. We were building our instruments in-house. So we had to fail fast and experiment quickly. With agile methodology, today, we can deliver new loan products in 2 weeks. A bank would take about an year to do the same.”

How is the policy environment evolving in India, with respect to your industry?

GH:  “The Mudra banks for refinancing are a welcome move. With 950 million Aadhar numbers issued, allowing eKYC, is it much easier to issue loans. The Digital India initiative to create better internet connectivity will help us reach a much larger customer base.”

They are leveraging the Indian stack to refine their instruments and are growing with it.

How difficult is it to get payback of loans?

SR: “SMEs are the most financially aware and responsible segment, since they always manage their finances tightly. Also, our screening process mitigates high risk customers, allowing us to cater to the needs in minimum possible time frame. So that’s not much of an hassle.”

What would be the 3 lessons you have learned from your journey?

GH: “1. Perseverance – One needs to believe that the idea would work, when no one else knows if it will. It is important to stick to that optimism and keep trying to find the exact fit.

  1. Strong fundamentals – From the first day, the business needs to know where its money will come from. The cash flow should not be dependent on where one is, in the funding cycle.
  2. Rounded team – Build a great team if you want to build a great product. A strong team stands by you to make it possible.”

What would you say to the entrepreneurs starting up fresh out of college? 

SR: “There is no right time to startup. Whenever you get passionate about a problem and see a large market for it, go for it. Here are my 3 tips:

  1. Address a big problem. If you go after a problem which is not so big, it may not be worth all the effort. India provides huge opportunities with really major problems that need to be addressed.
  2. Maintain discipline. Whatever you do, think big and build for the long term.
  3. Understand your responsibility. As you grow your team, you need to realise that families of your employees are getting dependent on you. It is essential that you take your decisions wisely.”

What are the mistakes you wish you did not make?

GH: “We were too slow in the start. We should have been aggressive, and believed in ourselves more. We thought people might not accept a technological solution. We have realized however, that technology has to lead the change in society. Invest in constantly being disruptive and you will definitely make a difference.”

News piece sourced from ProductNation. Read the full piece here.

Oct 24, 2018