Loan Products in the Market for SMEs: 5 Steps to find the best Business loan type for your Business Requirements

An enterprise that has a strategic business plan for its growth but not enough cash to execute the same can approach institutional lenders for funds. There are multiple sources of procuring a working capital loan in the organised credit market. These include private and public sector banks, development banks and non-banking finance companies (NBFCs).

The digitally enabled NBFCs known as FinTech lending companies have become some of the major lenders supporting the growth of micro, small and medium enterprises (MSMEs, SMEs) around the world. In India too, the FinTech lending model is becoming popular, and start-ups find it more convenient to borrow from them as these companies offer unsecured business loans.

What kind of businesses can borrow from a FinTech company? How to apply for a FinTech SME or MSME loan? Could this be a month-long process like most other institutional lending systems? These are some of the questions that organisations not acquainted with the digital lending framework ask. And the answers bring relief to most of them.  

In their mission to support the Make in India initiative, established FinTech companies are coming forward to assist as many enterprises as possible. They have a diversified array of products that include working capital loan, term loan, supply chain finance, machinery loan and other funds customised for different commercial needs.

You need to take merely 5 steps to find the best business loan type for your business requirement when you decide to approach a FinTech company for finance.

Before we further look into these five steps, here is some more information on the different types of funds provided by these digital lenders:

Working Capital Loan—This form of finance helps sustain the regular operations of any business. It is usually taken for a short term – up to 12 months – to procure additional raw materials, buy inventory, pay for utilities and to give advance payments to suppliers. Your business can use this loan as a cash cushion and manage seasonal sale fluctuations.

Term Loan—FinTech companies also offer loans for longer tenures when businesses need to make bigger investments. When the loan amount taken by an SME is approximately Rs 20 lakhs to 50 lakhs, it can be paid it back in 2- 3 years in small instalments. Term loans can be taken by any manufacturer, trader, distributor or professional service provider.

MCA Loan—A Merchant Cash Advance (MCA) loan is a funding option open to businesses that frequently accept card-based payments from their customers. The FinTech lender looks at the monthly credit or debit card receipts to determine the creditworthiness of a borrower. Eligible businesses in Indian can borrow between Rs 1 lakh and 1 crore as per their average card settlements. The loan can be paid back in 9 to 12 months.

Machinery Loan—As the name conveys this loan is procured to purchase machines and equipment used in the manufacturing processes. Businesses in construction, packaging, fabrication, and assembling of products can use these loans to overcome temporary financial roadblocks. FinTechs have flexible repayment terms for such loans.

Invoice Finance—Another customised business loan for SMEs and MSMEs, invoice financing enables businesses to borrow against their Account Receivables. If your company needs immediate cash to fund operations, but your clients will process your bills at later dates, you may be eligible to get quick invoice finance from a FinTech company.

Pay Later Loan—An SME loan in the form of a pay later finance comes with a pre-defined amount that is exclusive to each business as per its requirements and earning capacity. On this loan borrowers can make multiple draw-downs within the approved limit. They just need to pay back the sums used to reinstate the balance for further usage. It is a rolling credit product to help small businesses pay their suppliers at short notices. The top benefit of this loan is that the interest is charged only on the amount used and not the full limit approved for the borrower.

Supply Chain Finance—A tailored loan to help dealers and suppliers having business relationships with large, blue-chip companies, supply chain finance can be availed to buy inventory, improve cash flow, reduce the cost of goods sold (COGS), improve sales, and ensure the timely availability of goods for consumers. With supply chain finance, the borrowing business can reduce its dependence on the buyer while benefiting from the fluidity in its financial position.

FinTechs also offer bespoke funding for specific professions and businesses. These may be in the form of a school loan, doctor loan, online seller finance, franchise finance, petrol pump loan, restaurant loan or a loan for any other legally permissible business.

5 steps to find the best business loan type for your business requirements

When a FinTech company offers a custom loan product for your line of business/profession, it is important to identify the right kind of finance product.  It is thus good to be aware of the general ways to choose the right SME or MSME loan.

  1. Make a note of your requirements—When your business has a good credit rating, it can be tempting to borrow a sum larger than what you need. You may want to keep a bigger cash reserve for working capital. This, however, is a wrong strategy. Remember that as the loan amount increases your instalments to repay it will also be bigger. It is advisable to use a business loan EMI calculator to know the sum that you can repay and apply for the correct amount of funds that will fulfil your need.
  2. Check your eligibility—Borrowers are often asked to pledge some financial asset as security,  to be eligible for most of the conventional loans. However, FinTechs offer unsecured loans and check the creditworthiness of borrowers on the basis of years in operation, revenue earnings, past loan history if any and compliance of the business with tax laws. You can check your eligibility criteria relating to specific loans by referring to the lender’s website or speaking to their customer service team.
  3. Compare loan costs on all parameters—Do not be instantly allured to loans that advertise low interest rates. Such an SME loan may also have a loan processing fee of 3% or more, and multiple hidden charges such as a legal fee, documentation fee, insurance premium and other statutory payments. On the other hand FinTech loans that have a slightly high interest rate come with just a processing fee of up to 2% and no hidden fees.
  4. Collate the required documents—To verify the information filled in a loan application you will need to have your KYC documents, copies of the latest tax returns, bank statements and few other papers as per the nature of the loan sought. The benefit of going for a FinTech loan here is that you only need to upload soft copies of such documents as the loan application is made digitally.
  5. Apply for the loan—Once you have understood your requirements, eligibility, cost of the loan and have collected the required papers, the last step is to apply for the funds. When you make a digital application, ensure that the lender has a secure website that will encrypt all your personal and business details.

Apply for Unsecured school loan

At Capital Float every business loan application is reviewed within minutes of its submission, and if approved, the fund is disbursed in the next 2-3 business days. At the end of these 5 steps to find the best business loan type for your business requirement, you can be rest assured that you have the right amount that you wish to add to your working capital and the right loan type from the collection of credit products at Capital Float that is customised for your needs.

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6 Quick Tips to Consider Before Applying for a Short-Term Business Loan Online

Small and Medium-Sized Enterprises (SMEs) have received a tremendous fillip of late, with the Government pitching in to give a hands up to this very vital business sector. SMEs engaged in businesses ranging from electronics to ad services, or from engineering to textile to handicrafts routinely face a cash crunch that handicaps their everyday operations, as well as hampers plans for expansion.

SMES and the short-term loan

It takes immense courage to begin your business, and taking risks of establishing, sustaining, and expanding it can be prohibitive for many. Financing is the fundamental issue here, and many businesses are compelled to shut shop or to approach banks in order to raise short-term business loans.

Finances are the lifeblood for any enterprise, and any business plan worth its salt must include sound planning for fund sources as well. Short-term business loans and short-term finance are available in plenty and offer SMEs a chance to overcome their temporary financial problems as also provide an opportunity to expand their business. However, these loans are not without pitfalls. Here are some tips that will help an SME to take a well-considered decision when it comes to applying for short-term business loans:

1. Do your homework

SMEs are recommended to do adequate research to identify the option that are most suitable to them. Occasionally, and especially if the borrower has a good credit score, a simple overdraft or line of credit can help the SME to tide over their cash flow problems. Bank loans carry low-interest rates, but the paperwork involved and time taken to sanction can be burdensome. Crowdfunding, inventory financing, and credit card financing are options that can be explored. Promoters also help to finance a large chunk of working capital requirements. But if a short-term loan is a final option, a careful look at the costs involved can help to tip the scales over.

2. Try online loans

Short-term online loans are meant to be repaid anywhere between 90 days to three years. They are quick, convenient and flexible. A good deal of the paperwork process is cut off and friendly financiers also help eliminate the traditional application method of back-and-forth conversation. The huge advantage lies in not necessarily having to offer collateral. Provided an SME finds the right fintech lender, they can benefit from the speed of digital processing. Additionally, preclosure penalties and hidden charges are also avoided. Genuine financiers will also provide the convenience of flexible loan tenures.

3. Measure business liquidity

There is always a possibility that even a profitable SME can run into cash-flow problems, regardless of the numbers reflected on the cash-book records. Delays in receivables have hurt many a lucrative business, and are in fact a common cause for cash-flow mismatches. In such cases, measuring the liquidity of the business can be very useful for an SME in order to find an alternative way to mitigate problems of a cash crunch. The proper evaluation of liquidity can be extremely beneficial, and can be measured in two ways:

Quick Ratio It shows the capability of business in covering current liabilities with current assets, and utilises the formula:

Quick Ratio= (Current Assets – Inventory)/ Current Liabilities 

Working Capital

It is measured by calculating the difference between the current assets and current liabilities, with the formula:

Working Capital = Current Assets – Current Liabilities

Getting these figures in hand can help measure business solvency, and thus available funds can be duly channelised and prioritised.

4. Capitalise on credit score
It pays to maintain a good credit score history, in more ways than one. A good credit ranking can help you bargain for lower interest rates on short term business loans. Also, it opens up room for tapping into other means of raising money, such as getting into partnerships or seeking non-traditional lenders for funding.

On occasion, the lender may analyze both your business and your personal debt load, in addition to your credit score. If any of these is already high, the lender may hesitate to extend or provide fresh credit for your business. So, it is important to keep a tight rein over your credit utilisation, so that the services offered by the lender are not affected by your credit score.

5. Check APR

While comparing and selecting the best short-term business loan and finance service, one must always keep in mind the number of applications they are filing for apply for the term loan. After receiving multiple loan offers, one must select the most suitable loan offer by comparing the Annual Percentage Rate (APR) of every term loan lender. This is perhaps the most important calculation to estimate how expensive a loan is. Once you understand the logic of short-term business loans, it is easy to decide whether or not getting a particular loan is a right choice in terms of its actual cost.

6. Be ready for lender’s queries

Things don’t end here. There are chances that the lending party can contact the SME for verifying their documents that they submitted while applying for term loan. Thus, the SME owner must always be ready for answering any query regarding their documentation or regarding their future goals for the company. A small preparation toward this can prove to be very beneficial in getting a loan finalised. Ergo, shortfalls of cash may be inevitable, but not insuperable. A little bit of math and careful consideration of the choices can help you get the cash you need—hopefully at the price you can afford— without having to fall into a debt cycle.

Oct 24, 2018

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Repay with ease using Paytm

As India’s leading digital lender, we are always mindful of what’s most important for us: our customers. All Capital Float’s finance solutions can be customized based on the nature of your business and the rate of cash flows, among other things. Our online loan application process ensures that you can avail a loan anytime, anywhere with minimal documents. Flexible repayment terms through offline and online channels are facilitated to ensure that you have a seamless financing experience with Capital Float, through and through.

With the added ease that digital wallets provide, we have collaborated with Paytm to set up yet another payment option for your convenience. EMI payment can now be done through your Paytm wallet in two ways: directly through the Paytm app or from your Paytm wallet via the Capital Float mobile app.

Here are the steps for a successful EMI transaction using your Paytm wallet.

1. Via the Paytm Mobile App

Capital Flo

Step 1: Login to the Paytm app on your smartphone. Under the ‘Recharge/Pay for’ section, click on Loans

Step 2: From the list of financial lenders listed, choose Capital Float

Step 3: On the page ‘Pay Your Loan EMI’, enter your Loan Account Number (LAN) and click on Get Payable Amount.

Step 4: Your due EMI will be automatically generated on the next screen. Click on ‘Proceed to Pay’ to make the payment.

 

2. Via the Capital Float App

Capital Flo

Step 1: Open the Capital Float app, and Login by entering your registered phone number or email ID & password. You can also Login via Google if you had registered with a Gmail email address.

Step 2: Under the Loans tab, click on the option ‘Repay’. If your EMI payment is overdue, check the Updates tab for Overdue and select ‘Pay Now’.

Step 3: The Overdue Amount will be shown. If you select Upcoming Amount only, then this will get preselected. You can enter a lesser amount under ‘Make Payment of’ as well.

Step 4: Choose the option ‘Pay from your Paytm wallet’ and login using your registered mobile number and a 6-digit OTP code.

Step 5: Recharge using debit card/credit card/net banking or utilize the available balance in your Paytm wallet to complete the transaction.

Note: Capital Float accepts EMI payments via Paytm ONLY through the above mentioned methods. A Capital Float representative will NOT ask you to make loan payments to other mobile numbers. In case you receive such a request, please contact us at 1800 419 0999 or email us at myloan@capitalfloat.com

Oct 24, 2018

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Top Reasons Why Unsecured Business Loans Are Becoming Popular

During the lifecycle of a business, there are times when the inadequacy of working capital threatens the flow of operations and hinders growth. Traditional lending institutions in India such as banks rarely provide assistance in such situations, as they generally demand collateral, which small business and young entrepreneurs may not possess. An unsecured business loan can take care of routine business expenditure such as maintenance of machinery, making payments to suppliers and purchasing raw material. It can also be useful for business expansion activities such as purchasing new machinery or expanding premises.

Moreover, all small and medium enterprises need funds to seize new opportunities for growth, and the window for such opportunities is usually small. In such a scenario, there is a need for quick access to funds. The loan repayment schedule also needs to be synchronous with the expected revenue flow from a business venture. Hence, an unsecured business loan taken from a FinTech company works best for them, as it is disbursed much faster than a loan from a bank. Further, these FinTech companies ensure that an SME is always at ease while paying the loan instalments.

Unsecured loans are turning extremely popular amongst small businesses communities. These are a few reasons why.

They help strengthen the business finances

A suitable business growth opportunity can present itself at any time, and therefore a small business needs to have access to adequate resources at all times. In case the cash flow situation is imperfect or there is a working capital requirement to meet routine business expenses, it helps to take an unsecured loan for a short period until the situation improves. This ensures that a small business will never find itself at a disadvantage when a new opportunity presents itself. Such loans from FinTech companies do not come with any prepayment penalty, and their tenure can vary from a few months to a couple of years.

Faster approval and quick access to funds

The digital revolution and the subsequent development of IT systems and processes have led to the rise of new age FinTech companies over the past five years. FinTech companies in India follow a completely different approach to the unsecured business loan market, as they use innovative technologies to profile, design and disburse loan products for small businesses. Even the application for an unsecured loan can be made online or through the mobile app, and all supporting documents such as bank statements, tax statements, previous loan statements, KYC documents, business receivables and other relevant documents can be uploaded in digital format. The use of advanced analytic techniques allows these companies to process a loan application within minutes. Upon approval, the loan amount is transferred to the borrower’s bank account within a few working days.

An unsecured loan product for every business

Extensive use of technology enables FinTech companies such as Capital Float to design new loan products that are meant to fulfil varying business needs. The loan product, Term Finance, is meant for small businesses that have been in operation for more than two years and have been doing good during that period. Such businesses can take business loans from ₹1 lakh to ₹1 crore for a duration of a few months to three years.

Supply chain finance is meant for small businesses that have blue-chip companies as customers. Such businesses can take up to 80% of the pending invoice value as an unsecured loan. The loan can be repaid either as monthly instalments or at one go upon receiving payments from the customer.

Unsecured loan products designed to support digital economy

Online Seller Finance is another loan product from Capital Float that is designed for businesses that generate revenue through e-commerce marketplaces. It provides up to 200% of the monthly sales volume as advance to such businesses. This money can be used to accelerate business growth online.

Similarly, merchants that receive the bulk of their payments through PoS terminals can avail up to 200% of their monthly card settlement value as advance through a customized finance product called Merchant Cash Advance. The loan amount can be repaid through the deduction of a fixed percentage from card settlements in the subsequent months.

Get loans on the most favourable terms

Capital Float offers loans at the most competitive rates. These unsecured loan costs can be brought further down by choosing the right loan product. Capital Float charges a flat 2% processing fee for all their loan products, and there are no other hidden charges. Another great benefit is the flexibility offered in loan repayment, which is linked to the business receivables.

Indeed, new age technology driven FinTech companies have eased the pain in procuring funds from the unsecured loans market in India, and small businesses can look up to them as a partner in their business growth.

At Capital Float, we fully understand the business challenges faced by small businesses and have therefore designed the unsecured loan products in such a way that businesses can focus more on business growth rather than on worrying about getting business finance. Our customised plans ascertain that you get just the right product that suits your unique need.

To find out the product that best suits your business, click here.

Oct 24, 2018