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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5 Practices Business Owners Can Adopt at the Beginning of a Financial Year

The start of a brand new financial year is filled with several emotions for SME owners, ranging from relief after the intense pressure of March, anticipations and excitement for the year ahead. Amidst these, business owners often don’t find the opportunity to celebrate the year that has gone by and the new financial year up ahead.

The new financial year is the only occasion that is of sole significance to an SME, whereas every other event, festival or celebration involves friends and family. It is that time when the SME can celebrate with their team the previous fiscal year that was full of learnings, experiences, peaks and troughs. The beginning of a financial year also presents a unique prospect to start over; SMEs can renew their enthusiasm and vigor as they make new business decisions.

Indeed, celebrating the new financial year can become an ongoing ritual for SMEs as it also helps establish a stronger workforce with a refined drive towards the company’s vision. To gain an advantageous start, here are some practices to ease you into the new fiscal year, so that you can look forward to bigger success celebrations at the end of it.

1. Set financial goals
Whether your financial goals are numerical or tangible, they should be defined in a manner that lets you evaluate if they can be achieved or not. These can be long-term, such as profitability, margins, sustained cash flows, etc. that may not be accomplished over the span of the financial year ahead or specific goals that are short-term.

For example, a retail store that has rented a space might learn that the building owner plans to sell the building eventually, and intends to acquire the space for further expansion. For a smooth sale without depleting the working capital, the retailer should have a clear sense of the cost of down payment, mortgage and additional costs. Based on this, they can create a strict budget for the year and stick to it. Another option is to avail collateral-free finance options such as Term Finance or Merchant Cash Advance that offers flexible modes for repayment.

2. Evaluate the scope of debts
The beginning of the year is the best time to assess the debts that you might have accumulated over the past years. Start by weighing each of your existing loans based on its cost, interest rate and other subsidiary factors such as prepayment penalty. Always ensure that the loan with the highest ticket size is repaid first.

Business finance is not often a liability-encountering measure, but also an instrument for growth, expansion and diversification of your business. If you have a promising business opportunity at hand and are reluctant to accept it due to a shortage of funds, this is when you should consider availing business finance. To determine the customized credit solution that best suits your business, check out Our Products.

3. Improve book-keeping
Unorganized compilation of financial records is the most recurrent theme for SMEs who let go of trickling financial losses, only to discover a gaping hole in its wake. Unexpected, unrecorded cash expenses often eat their way into the profitability of a business, resulting in a long-lasting impact that might take several years to recover from.

It is integral to maintain records of operational and financial performance, and the method you adopt to maintain these play a major role in determining the accuracy of the data. If you have been managing business accounts on your own, it is advised that you hire an experienced tax accountant or opt for an enhanced accounting software this fiscal year. This will keep you free to focus on other tasks, with the assurance that you one step closer to higher profits.

4. Plan for new partnerships
Large corporations can perform the role of different stakeholders to an SME; they can assume roles as business partners, product distributors or customers. Contrary to conventional belief, small businesses have much to gain by associating with bigger businesses that operate differently from the way the SMEs function. This ensures that the partnership remains fruitful for both the entities involved, and avoids situations where they find themselves competing with each other If you feel that your enterprise will benefit from such a collaboration to supplement time, logistical organization and resources, this new financial year is when you can make that move.

5. Identify a new customer base
For any SME, extending the outreach of your brand to a wide demography of consumers is instrumental to evolve into a larger organisation. If you envision a steady rate of growth, what best time to target a brand new audience than the start of the financial year? You can also think of ways to improvise your product or service for a high-potential customer segment that is less exposed to competition. At the end of the day, this is an exercise that promotes out-of-the-box thinking.

A sound financial budget prepared with the above points in mind ensures that you are better prepared to face the new fiscal year. Also, it gives you an edge over your competitors on several fronts, and getting a business finance partner for your needs becomes much simpler when you are armed with a well-calculated plan.

Capital Float exists to serve the unique business aspirations of ambitious SMEs like you. With a growing base of 80,000 customers in over 300 cities across India, we provide customized credit solutions for the diverse needs that you might have. Paperless loan application, minimal documentation requirement and quick processing ensure that you receive funds when you need it. Choose from our new, innovative financial solutions for FY 18-19 and get ready to #BreakLimits!

Oct 24, 2018

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Working Capital Financing: Why It Is Essential For The Success Of a Business

India is on the path of robust economic growth. According to official figures, the economy was valued at $2.2 trillion in 2016, making it the world’s seventh largest economy in terms of nominal GDP. The Indian economy is expected to reach the $5 trillion mark by 2025, according to a report published by Morgan Stanley in February 2017. India seems to have all the right ingredients in place to achieve this phenomenal growth; the country’s millennial population is massive, there’s availability of cheap labor, the government’s policies are favorable, Indians have exhibited high adoption of the latest technological advancements and the SME segment is growing at a fairly healthy rate.

The SME (Small and Medium Enterprises) sector is critical to the development of the Indian economy. It contributed 40% of the nation’s exports and 45% of total manufacturing output in 2015. The segment’s contribution to India’s GDP is expected to grow from 17% recorded in 2010-2011 to 22% by 2020.

Despite these facts, the SME sector has witnessed some challenges with regards to financing. The need for cash to manage daily operations and the inability to access commercial finance have hindered the development of SMEs.

Why is Working Capital So Critical for Any Business?

All businesses need some funds to run their daily, weekly and monthly operations. Working capital is, therefore, essential for the smooth working of a business. The main reasons for working capital being so important are:

Enhances Solvency: Working capital aids a business to operate smoothly and meet all its short-term expenses, including purchasing raw materials, payment of salaries and meeting overhead expenses. Some of these payments cannot be delayed. Having sufficient liquidity helps the uninterrupted flow of production; thus, maintaining the solvency of a business.

Increased Goodwill: When a business is able to promptly meet its regular expenses and pay salaries on time, it generates goodwill, not just internally with employees but also with suppliers and distributors.

Uninterrupted Supply of Raw Materials: Quick payments ensure regular supply of raw materials. Suppliers of raw materials are usually apprehensive about small businesses being able to make the payments and do not offer a suitable credit period. The inability to pay suppliers can result in production coming to a standstill.

Improved Ability to Face Any Crisis: Apart from the smooth functioning of business operations, working capital ensures that any financial emergency can be handled with ease. Sometimes businesses face an unforeseen event, like an order being rejected, unfavorable weather conditions or the unavailability of a particular resource. A business that has sufficient liquidity can cushion itself against such situations. Thus, the financing of working capital defines the financial health of a business and how smoothly it can operate under different circumstances.

Why is Working Capital Finance So Difficult to Get for SMEs?

The most critical challenge that even profitable SMEs face is the lack of working capital, given their inability to access commercial finance. Public sector banks are burdened by bad debt loans to offer any support to these companies. Traditional banking institutions are apprehensive about offering commercial finance to SMEs and place stringent eligibility criteria for approval. Most of their loans require collateral to be furnished even for financing of working capital.

The greatest problem is that the loan application and approval process of traditional banking institutions is so tedious and prolonged, that SMEs find it excruciatingly painful to access these options. They may have to wait months only to have their loan application rejected. SMEs, therefore, look for alternate sources for financing of working capital and turn towards unorganized moneylenders who charge exorbitant interest rates.

Working Capital Financing Needs Met By Technology

SMEs need financing of working capital. They need swift and easy availability of commercial finance, without the need for extensive paperwork and collateral. The solution finally arrived in the form of FinTech lenders like Capital Float.

The FinTech segment has revolutionized the financing of working capital for SMEs by using cutting-edge technology in the loan application, underwriting and approval processes. This enables the disbursement of funds to SMEs within a matter of days.

Types of Working Capital Financing

There are a number of flexible, short-term and collateral-free loans offered that can be used to service new orders, purchase inventory and maintain cash cycles. These include:

Term Finance: This is ideal for SMEs particularly in the manufacturing and distribution space that need funds to meet operational needs or to expand and diversify the business.

Online Seller Finance: This is best suited for businesses that sell their products on leading online marketplaces. Capital Float has partnered with India’s largest marketplaces, like Amazon, PayTM, Snapdeal, Myntra, Shopclues and eBay to offer eCommerce sellers customized working capital finance.

Pay Later Finance: This product offers a credit facility and suits SMEs that have to regularly replenish their inventory. This revolving credit facility enables a borrower to make timely supplier payments from a predetermined credit amount. This amount can be reset upon repayment and is made available for further use.

Merchant Cash Advance: This credit solution is for businesses that receive payments via credit / debit cards via PoS (point of sale) machines. Capital Float has partnerships with multiple PoS machine vendors such as Pine Labs, Mswipe, ICICI Merchant Services, MRL Posnet and Bijlipay, expanding its reach to merchants across the country.

Supply Chain Finance: This commercial finance product allows businesses to use their invoices or accounts receivables as the basis to gain access to liquid funds.

SMEs are of strategic importance to the Indian economy and deserve a business climate in which they can thrive and grow. The financing of working capital made available by FinTech lenders will help the SME segment to move forward and contribute significantly to the growth of the Indian economy.

Oct 24, 2018

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Top 10 Reasons Why Private Schools Take Loans

To provide quality education, private schools in India must have cutting-edge infrastructure and well-planned facilities. This is even more important now because the generation currently in schools is growing in an environment of mobile computing devices and e-commerce. Since private institutions are entirely dependent on their own earnings to improve their campus, they may need school loans to finance such expenses.

Let us look at the top reasons that drive schools towards taking loans from banks and NBFCs:

1. To construct a new school building

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Loan for construction of school building is commonly sought by institutions that are successfully providing education services but need more classrooms to accommodate the increasing number of students. Adding more sections for each grade is also a good idea when schools are focused on keeping a low student:teacher ratio.

2. To build a playground/sports court

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School loans may also be required to add a playground, basketball courts, tennis courts or rooms for indoor sports. Games are an essential part of school education, and if a small unsecured loan from an institutional lender can help to build a beautiful playing field, the investment is worthwhile.

3. To develop a laboratory

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Schools need to have well-equipped labs for practical experiments concerning physics, chemistry, biology and to give students hands-on experience with computer studies. Some private schools are also required to have Home Science labs as per the curriculum for their students. A quick loan for school laboratory can be procured at easy terms from a FinTech lending company. Such lenders usually provide up to Rs 50 lakhs on loan for building school laboratory.

4. To buy furniture for classrooms, staffroom

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A simple reason to apply for a loan could be the purchase of new or additional furniture for students and staff. The cost of ergonomic desks and chairs may not be within the budget of the school, and financial support from a FinTech company can come in handy.

5. To purchase commercial vehicles

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Schools that provide transportation services to their students and staff may need to buy new buses or vans. If adequate finance is not available for such purchases, FinTech lenders can offer simple digital modes to provide unsecured loans with flexible repayment options.

6. To build or improve a library

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Well-stocked libraries are essential components of any school’s infrastructure. A school that has been running successfully for some time, but does not have a library, can borrow funds from school loan companies to build a quality library on its campus. Unsecured school loans can also be taken to buy stocks of new books that are too expensive to purchase in the available library budget.

7. To start a new facility on premises – stationery/canteen/uniform shop

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Private schools try to offer all the essential facilities for the convenience of students. If there is a stationery unit on the campus, students can purchase prescribed textbooks and other essential items without having to visit markets. A shop for summer and winter uniforms makes it easy to buy the exact uniform as required by the school. While canteens are not “must-haves”, they are good to provide hygienic menu options to the students and staff. School loans may be taken to fund such facilities.

8. For repairs and renovation

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A school that already has structures or facilities for education and sports may also need a loan to repair, renovate and improve them. It can digitally apply for such funds on a FinTech company’s website.

9. To purchase new teaching devices, audio-visual equipment

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School loans fund the purchase of interactive teaching devices that are becoming increasingly important in the digital age. Educational institutions can borrow to install whiteboards, overhead projectors and other audio-visual teaching aids to make learning more interesting for their students.

10. To add/improve day-boarding facilities

Some private schools offer day-boarding amenities to their students. As a part of this facility, they need to provide healthy meals and areas for rest and recreation. To build and improve such environment, they may need loans that are offered most conveniently from FinTech companies.

As a leading digital NBFC offering loans to educational institutions, Capital Float funds all such requirements of schools in India. To know more about our financing products, feel free to call us on 1860 419 0999.

Apply for Unsecured school loan

Oct 24, 2018