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.

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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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Top 3 Reasons Why Unsecured Loans Help Small Businesses Grow Faster

A small business generally embarks on its journey through investments from angel investors or venture capitalists. As its business matures, it may aspire to borrow more money not only to keep the enterprise operational, but also to explore new horizons. Such a small business can approach banks and other traditional non-banking finance companies (NBFC) to procure business loans. However, these institutions follow a prolonged process for loan approval and prefer providing small business loans only against collateral. Most small businesses that are still in their growth phase do not have sufficient collateral to get secured business loans, and so their only avenue for business funding is an unsecured business loan.

The new age FinTech companies such as Capital Float provide unsecured loans in India to small businesses to help meet their urgent business needs. By applying innovative technologies, they are able to process an unsecured loan application in virtually no time. Their processing, from loan approval to disbursal, also remains completely transparent throughout. Once approved, the unsecured business loan amount is credited to the bank account of the customer in three working days.

Unsecured small business loans come to the rescue of small businesses at critical times, and with the right amount at the right time, they considerably aid a small business in growing faster. Let us look at how taking an unsecured business loan helps in business growth.

Maintaining healthy cash flows

In the past, small businesses used to be averse to availing an unsecured loan due to concerns about falling into a debt trap. They also occasionally lacked confidence in their ability to repay unsecured loans. This is no longer the case. In a fast-growing global economy such as India, plenty of opportunities are available for small businesses to explore with greater confidence. Maintaining a healthy cash flow position provides them with additional funds for marketing of products and services, adding new inventory, expanding premises or hiring more staff.

Unsecured small business loans provide the strategic edge to make wise investment choices, which help a small business to grow faster. The revenue earned from new business ventures can be used to repay the unsecured loan and to boost the cash flow position.

Timely access to funds

One of the great advantages of taking unsecured small business loans from FinTech companies is the hassle-free and speedy loan approval process. Business opportunities today appear in a flash and and could quickly disappear, unless tapped at the right moment. Therefore, a small business cannot afford to spend time on filling up lengthy unsecured loan application forms and collating the required business documents in support.

The application for an unsecured loan from FinTech companies can be done online or through a mobile app, and all essential business documents such as bank statements, previous loan statements, tax statements, business invoices, KYC documents and the like can be uploaded online. These companies focus on providing unsecured small business loans to SMEs and fully understand the business challenges faced by them.

A variety of unsecured loans for different business needs

Businesses can avail unsecured small business loans at competitive rates from FinTech companies such as Capital Float according to their need. We provide a variety of unsecured small business loans that are designed to take care of differing business requirements. These include:

• Term Finance: Small businesses that have been in operation for more than two years and have sound business financials can take unsecured loans such as Term Finance. This product allows a business to borrow money varying from rupees one lakh to rupees one crore, for a tenure ranging from a few months to up to three years. A nominal processing fee is charged, and there is generally no pre-closure penalty.

• Supply Chain Finance: SMEs with invoice receivables from large companies can avail themselves of Supply Chain Finance for up to 80% of the invoice value. This unsecured loan can be repaid either through monthly instalments or as a one-time payment upon receiving funds on your invoices.

• Online Seller Finance: Certain loans such as Online Seller Finance have been designed keeping in mind the specific requirements of merchants who sell aggressively through online marketplaces such as Flipkart and Amazon India. Such merchants can take up to 200% of their monthly receivables as an unsecured loan.

• Merchant Cash Advance: Businesses such as retail stores and restaurants that receive the bulk of their payments through card swipe machines can also take up to 200% of their monthly receivables as an advance upfront through this loan product. Merchant Cash Advance can be repaid through a fixed percentage deduction from the card settlement amount in the subsequent months.

Benefit from competitive interest rates for unsecured loans

Besides the various innovative services offered through technology, FinTech companies such as Capital Float also offer unsecured loans at the most competitive rates. The services offered are thoroughly professional in nature as compared to other NBFCs, and greater flexibility is offered in the repayment of unsecured loan, so that a business can focus more on achieving its growth targets.

Capital Float acts like a partner to small businesses, which could be traders, manufacturers, service providers or retailers. Unsecured small business loans are provided based on the financials of a small business, and at no point is there a requirement to pledge any asset.

Capital Float believes in being the pioneer in innovation while offering unsecured loans in India to SMEs. This is showcased through our various unsecured loan products to fulfil needs of businesses in every sector. Capital Float charges a flat processing fee of 2% across various unsecured loan products, and no hidden charges are levied beyond the interest rates.

Oct 24, 2018

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Budget 2017: Giving SMEs a stronger footing

SMEs play a crucial role in the economic development of India. They contribute to 45% of the industrial output, 40% of the exports and 42% of the employment in the country. Although these enterprises are highly significant to the economy, they are regularly challenged by policies, laws and processes In recognition of this, the Union Budget 2017 gave start-ups and SMEs a lot to cheer about.

Increasing Financial Viability with a Lower Tax Burden

Finance Minister Arun Jaitley announced a reduction in corporate tax from 30% to 25% for SMEs with an annual turnover of less than ₹50 crores. Moreover, the presumptive tax rate for SMEs with an annual turnover of up to ₹2 crores has been lowered from 8% to 6%. Both these measures would increase the bottom-line of SMEs. These enterprises work on low profits, and their survival is often threatened by even minor fluctuations in the business. The enhanced financial viability would increase the survival rate of SMEs.

At the same time, Budget 2017 has tried to align with the broader objective of increased digitalization. The proposed reduction in presumptive tax is applicable only for a firm’s gross receipts that are received via digital transactions. Also, no cash transaction above ₹3 lakhs would be permitted going forward. Both these measures have been designed to increase transparency and widen the tax base through digitalization.

Much Needed Breaks

Start-ups need maximum support during their initial years. From the next fiscal year, start-ups would have to pay taxes for only three out of seven years, up from last year’s exemption limit of five years, if they recorded profits. This is a great opportunity for start-ups and the economy. While a huge percentage of start-ups fail, these enterprises are responsible for introducing the most innovative products and services. The tax break announced by the Finance Minister would give start-ups a better fighting chance of survival and encourage more innovative ideas to be executed well.

Loans, Financing & Funding

The Finance Minister doubled the lending target to ₹2.44 lakh crores for the next fiscal year, making more credit available to small businesses to finance their working capital needs. Prime Minister Narendra Modi had already announced, on December 31, an increase in government credit guarantees for SMEs from ₹1 crore to ₹2 crores.

The FIPB (Foreign Investment Promotion Board) is to be abolished in the upcoming fiscal year. This would significantly liberalize policy related to FDI (Foreign Direct Investment). This is expected to boost retail and ecommerce in the country. Mr. Jaitley mentioned that further FDI relaxations were under consideration.

Most traditional banks are unwilling to give loans to SMEs due to the fear of defaults. Tax concession on provisions for non-performing assets (NPAs) and capital infusion of ₹10,000 crores for state-owned lenders would make loans more accessible to SMEs.

To encourage more investments into start-ups, the condition of continuous holding of 51% voting rights has been relaxed for carrying forward of losses by start-ups, provided the founder remains invested in the business.

Building on Digital India

While saying the almost 125 lakh people had adopted the BHIM digital payment app, the Finance Minister announced two new schemes – cashback for merchants and referral bonus for individuals.

Aadhaar Pay, the merchant version of the Aadhaar Enabled Payment System (AEPS), is to be launched shortly. This app would enable consumers to make payments without using cards, e-wallets or even mobile phones, since the merchant’s device would be linked to an Aadhaar biometric reader. More than a billion people in India already have Aadhaar cards, and this system would make most financial transactions simple, fast and traceable. It would be a boon for raising loans, enabling fintech lenders to link repayment to payments received by the SME.

The government would be targeting ₹2500 crore digital transactions in FY18 through BHIM, Aadhaar Pay, IMPS and debit cards. The Finance Minister indicated that banks would have to introduce 10 lakh new point-of-sale (PoS) terminals by March and 20 lakh Aadhaar-based PoS terminals by September, allowing more digital transactions, which would enhance financial inclusion and transparency.

Infrastructure

For the upcoming fiscal year, the Finance Minister announced a step-up in the total allocation for infrastructure development to an all-time high of ₹3.96 lakh crores, including increased allocations for railways, road and shipping. Infrastructural development eases a huge bottleneck faced by SMEs in transporting their goods to other regions in a timely and cost-effective manner. Better infrastructure would give confidence to SMEs to expand their markets farther and reduce wastage and spoilage during transportation.

Moreover, the roll out of GST (Goods and Services Tax), which the Finance Minister indicated was tracking as planned, would further increase the ease of doing business in other states.

An allocation of ₹10,000 crores towards the Bharat Net project was announced. This would increase access to high-speed broadband across India, facilitating communication and allowing SMEs to reach out to clients located in various corners of the country in a cost-efficient way. The geographic scale achieved will help SMEs to break physical boundaries and leverage bigger opportunities for growth.

The latest Union Budget comes as a respite for start-ups and SMEs. The strengthening of these businesses would play a critical role in India’s transition to becoming an economic superpower.

Oct 24, 2018

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How WhatsApp Business is Useful for Small Business Owners

As the past couple of years witnessed a drop in data costs, WhatsApp has successfully replaced the traditional offline messaging service as the primary mode of text communication in India. Leveraging this fact, this messaging platform launched WhatsApp Business – the pilot for a dedicated mobile app exclusively for businesses – in early September 2017.

Since its launch, popular brands in India such as BookMyShow and MakeMyTrip have been using this Facebook-owned WhatsApp business strategy to connect with their target audience. Though there are many apps that cater to business users, a messaging platform like WhatsApp provides a wider scope for a larger number of businesses, be it the local grocery store, professional services, medical institutions and even the government.

Features:

  • FREE OF COST
    You read right! WhatsApp Business lets you list your business and contact your customers at absolutely no cost. With a popular messaging app enabling business owners to send service messages for free, this could mean a gradual decrease for the conventional, but costly SMS facility. This WhatsApp business plan also counters the need for SMEs to create a mobile presence by designing smartphone apps, a distinct advantage for young enterprises from a cost and complexity perspective.
  • DESCRIPTIVE BUSINESS PROFILES
    If you own a small business without a website, WhatsApp Business allows you to describe your business in detail, and you can fill in addresses, contact numbers, social media links, etc. that lets your clients know more about the nature of your operations. The app takes verification seriously; a green tick appears against the name of your business when WhatsApp Business has corroborated the details you had provided.
  • MULTIPLE MESSAGING OPTIONS
    This unique feature of customized reply settings on WhatsApp Business ensures that you are customer-ready at all times. The ‘Quick reply’ option lets you set up standard responses to frequently asked questions. To all new leads who get in touch with you, the ‘Greeting message’ can introduce your business and what makes you different. You can also frame a custom ‘Away message’ for communications during off hours or when the small business owners are busy.
  • BUSINESS ANALYTICS
    More communication also means more data, which can be leveraged to understand your customers better. WhatsApp Business offers messaging statistics, a feature that provides metrics on the number of messages that were sent, delivered and read. Using this information, you can analyze the frequency of response from your leads or customers, modify the content of quick replies and experiment on the strategy of communicating with them.
  • WHATSAPP WEB SERVICES
    WhatsApp Business supports its projection via WhatsApp Web, which lets you manage the service through your computer without the mobile app. It provides additional efficiency when interacting with clients and partners, and leaves automation possibilities open as the system grows.

Setting up WhatsApp Business

WhatsApp Business in India is present only on the Play Store; so you will need an Android smartphone to use the app. As every WhatsApp account can be linked to unique mobile numbers, you register on this WhatsApp for business by using your official business number or your office landline.

Keep these ready before you set up the WhatsApp Business app, the steps for which are given below:

1. Backup your chat data to cloud storage if you already have a number which is primarily used for business with WhatsApp. Click on Chats>>Chat Backup>>Backup to upload to the cloud.

2. Download the app from the Google Play Store, install it and then launch it by tapping on the new WhatsApp Business icon.

3. Enter your business phone number that will be used to communicate to your customers, and verify it using the SMS (for mobile phones) or ‘call me’ option (for landlines).

4. Restore the previous chat related to the number once verification is complete (from Step 1).

5. Fill the name of your business and from the chat section, tap on the menu button and head to Settings>> Business settings>> Profile. Here, you can fill in all the details that you want to share with your customers.

What’s in it for small businesses?

WhatsApp Business is extended only to small businesses, an exclusivity that budding entrepreneurs can use to their advantage. The WhatsApp for business marketing aims at streamlining and extending the reach of small businesses without making hefty investments in website development, mobile app creation, customer support, and more.

Moreover, it helps notch up the idea of personalized marketing, as you can use the app to share images of products and promotions periodically to your loyal band of customers. The WhatsApp Business app also offers credibility to small businesses – a green tick against the name of your enterprise verifies the genuineness of your services and operations, an aspect that will help a majority of SMEs to reach out to a wider audience.

There are nearly 230 million WhatsApp users in India, and the fact that everyone knows how to use this WhatsApp for business use eliminates the time required to learn the nuances of a mobile application for businesses. Thus, WhatsApp Business is a ground-breaking solution to the communication and marketing needs of small businesses. We expect the introduction of WhatsApp Payments to act as a catalyst for this business with WhatsApp option to implement artificial intelligence, data analytics and voice recognition technology to optimize it into a powerful sales and marketing channel for small businesses.

Oct 24, 2018