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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Considerations for educational trusts to keep in mind while availing finance

To upgrade the quality of education delivered in their school, authorities running the institution may occasionally need to apply for loans. The first thought that strikes while contemplating Indian school finance is one of approaching a bank. The low rate of interest and general trust in the banking system draws many private schools to these established lenders.

Although banks offer loans to businesses and other organisations, when it comes to financing educational institutions, things can be rather challenging, and it may take long before the school actually receives the requested amount for use. The reason for this is complex eligibility criteria and the long list of documents necessary to get the loan application approved.

School finance in India is granted to institutions that are backed by promoters or a trust. While applying for the loan, a copy of the trust deed or memorandum of association needs to be submitted to the lender. However, when the loan is being applied through a public sector or private bank, it may also ask for hard copies of several additional documents such as three to four years of financial statements along with their audit report, three to four years of income tax returns submitted by the school, bank statements and multiple KYC documents.

With such requirements, if the school has been running for just two years, it may not be able to get the loan. In addition to a pile of printed copies, the legal restrictions for funding educational trusts may also compel the bank to ask for collateral security or involvement of a guarantor. This is considered to be the hardest part as not many schools can afford to hypothecate a valuable financial asset to the lender.

Is there any other alternative for private school financing? Can these institutions securely apply for their loan and get the amount in minimum time without going through the hassles of submitting numerous documents and arranging for collateral? The answer, fortunately, is ‘Yes’.

Keeping up with the plans of promoting quality education in India, digitally operating non-banking finance companies (NBFCs) called FinTech companies have come up with a borrower-friendly lending model. They provide school finance on easy terms and conditions that merely require the borrowing institution to:

  • Be a private school with fully functional classes from LKG to VIII/X/XII grade
  • Be run by promoters or a trust
  • Have an annual fee collection of more than Rs. 75 lakhs
  • Have the school building on its own property

Since the application process is digital, the school needs to upload only soft copies of the documents proving its eligibility. Moreover, financial/bank statements are required for just two years. There is no need to provide any security or guarantor promises: FinTech loans are collateral-free.

If you have plans to construct a new building in your school, stock up the library, refurbish the labs or add any other facility to enhance the education service, the answer on how to finance a school improvement plan lies in an unsecured loan from a FinTech.

Apply for Unsecured school loan

Capital Float is a leading school finance provider in the Indian FinTech industry. We offer quick loans of up to 50 lakhs to fund school development. To know more about our finance options, call us at 1860 419 0999.

Oct 24, 2018