6 things school owners must know before taking a School loan

Lack of adequate finance should not be a constraint when it concerns improving or a running education institution. There are several options in the financial market for school loans that can be procured to upgrade campus infrastructure, buy new equipment for your labs/classrooms, add new facilities for students and staff or any other productive purpose.

How to get loan for school” is no more a concern for prospective borrowers. The availability of multiple alternatives, however, makes it necessary for the borrowers to be aware of certain factors before they settle upon a particular source of funds. Let us look into six of these.

1. Does the loan require collateral?

Loans for private schools may be secured or unsecured. Many banks still ask borrowers for collateral to be pledged as security. While the low interest rate of such school loans may be alluring, the idea of hypothecating a valuable asset to the lender feels distressing. Fortunately, schools that cannot afford secured loans can get collateral-free finance from digitally enabled NBFCs, also known as FinTech companies. A FinTech lender usually does not require collateral, and issues loans based on the borrowers’ creditworthiness.

2. Is there a limit on the minimum loan amount to be taken?

Inflation rates warrant that nothing worth investing is cheap. However, why take a big loan that will entail much interest? FinTech companies keep an adequate range on the issuable loan amount to accommodate the needs of all institutions that want to apply for school loans. There are no rules requiring schools to apply for a large ‘minimum’ amount if they need merely 5-10 lakhs for the planned purpose.

3. What will be the tenure of the loan?

No institution would like to be debt-ridden for long. Payment of total interest is also high on long-term school loans. This is why it is advisable to check the tenure before accepting the funding from any lender. A FinTech company can be very accommodating and can provide a loan that can be paid back in only one year. A loan for educational institutions may also be stretched to three years.

4. What is the interest rate, processing fee and other charges on the loan?

While taking loans for private schools in India, check the interest rate and additional charges upfront. Banks and traditional NBFCs often have low interest, but their processing fee, documentation charges, legal fee, commission and a bunch of other charges may add up to a significant amount. At times, this is also necessary to cover their paper-centric loan approval process. Conversely, FinTechs that have a succinct digital application process charge a processing fee of up to 2.5%.

5. Are there any pre-closure charges?

Whether you are applying for a loan for construction of school building or to buy new equipment for teaching, your earnings may make it possible to pay off the outstanding balance earlier than its tenure. Such an eventuality is usually met with pre-closure penalties. It is advisable to check the rate of this fee before paying off a lump sum. As compared to banks, most FinTech companies have no or low prepayment charges on their loans.

6. How will the loan be repaid?

Along with the repayment charge, it is also good to check the repayment options for school loans. EMIs are the only way to pay off the debts availed from a majority of the traditional lenders. In comparison, FinTechs have flexible repayment options that can be adjusted as per the borrower’s preferences.

Capital Float is a leading FinTech lender for educational institutions in India. Visit https://www.capitalfloat.com/school-finance to know more about our school loans.

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Important GST Definitions, Terms and Glossary

The GST is ready for implementation and brings with it a slew of changes that indirect tax payers and business owners need to get familiar with. Not only are businesses required to register themselves under the GSTN, they must also reassess their business in accordance with certain new terminologies to determine how the GST impacts them. A few of the important GST definitions and the registration process are briefly specified here to help you get started.

GST terms to know 

Certain essential definitions have been mentioned under the Model GST Law, which was first released in June, 2016, and then modified and released again in November, 2016.

Business : Definition: Business refers to trade, commerce, manufacture, profession, vocation or any other similar activity, including transactions related or incidental thereto, irrespective of volume or frequency, as well as supply of goods/ services in connection with commencement or closure of business.

The definition is quite wide and seems to be borrowed from State VAT legislations. Some parts have been modified to include transactions in services.

Place of Business : Definition: (a) A place from where the business is ordinarily carried on, and includes a warehouse, a godown or any other place where a taxable person stores his goods. (b) A place where a taxable person maintains his books of account. (c) A place where a taxable person is engaged in business through an agent.

Since GST is a destination-based indirect taxation system, the place of business is a critical factor in determining the business model and taxation dues of a business that is present in many places.

Time of Supply : Definition: The time of supply is the earlier of the following dates: (a) Date of issue of invoice by the supplier or the last day by which the supplier is required to issue invoice or (b) Date of receipt of payment.

The time of supply is important since it determines the point of taxation i.e. the point in time when goods / services have been deemed to be supplied or services have been deemed to be provided and hence SGST or IGST apply.

Goods : Definition: “Goods” refers to every kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.

While the term “movable property” has been mentioned, it has not been defined in the Model GST Law, and one needs to refer to the General Clauses Act 1897 for this. It does not include intangible property such as intellectual property rights (copyrights, trademarks). Also, an item needs to be movable for it to be classified as goods.

Services : Definition: “Services” means anything other than goods.

The GST Model Law clarifies that services include intangible property and actionable claims but does not include money. There are separate definitions for supply of software, works contracts and leasing transactions, even though they fall in the ambit of services. The inclusion of “actionable claim” may create confusion where financial and commercial transactions are involved.

Software includes the development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software, and is treated as a service.

As far as leasing transactions are concerned, a finance lease would be considered as supply of goods, and an operating lease would be considered as a service under the Model GST Law,

Works Contract : Definition: It is an agreement for carrying on building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property. Work Contract has been defined as a “Service”, simplifying its taxation procedure.

Supply : The GST has three new definitions related to “Supply”, i.e., Principal Supply, Composite Supply and Mixed Supply.

1. Principal Supply
Definition: It is the supply of goods or services which constitutes the predominant element of a composite supply and to which any other supply forming part of that composite supply is ancillary and does not constitute, for the recipient an aim in itself, but a means for better enjoyment of the principal supply.
It is generally the dominant supply in a bundle of supplies or a bundle of services. For example, in a mobile phone and the charger, the mobile phone will be the principal supply.

2. Composite Supply
Definition: a supply made by a taxable person to a recipient comprising two or more supplies of goods or services, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

For example, goods packed with insurance and packing material is a composite supply, with the good being the principal supply. Here, there is a main supply and supporting supply, which normally go together in the course of business and enhance the enjoyment of the main supply.

3. Mixed Supply
Definition: Two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Take the case of a corporate gift pack that consists of a tie, a wallet and a pen. These are bundled in a package supplied for a single price. None of the items is dependent on the other, nor necessary to be purchased together. This is a case of a mixed supply, where the individual items, which can also be sold separately, are sold together.

Aggregate Turnover : Definition: “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Reverse charge tax is a system where the recipient of the supply (goods and services), i.e. the client, is liable to pay the tax. Inward supplies are input supplies used as an input for manufacturing the goods or providing the service. Tax paid on input expenses can be adjusted against tax paid on output supplies, through input tax credit. This means that it cannot be treated as a part of the aggregate turnover.

Read more about GST at our GST blog for India.

Oct 24, 2018

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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.

Oct 24, 2018

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Projections for the Future: Top 5 Small Business Trends in 2018

Thriving amidst difficult environments has never been easy for SMEs in India, but they continue to stand tall. Despite numerous challenges in the form of infrastructural constraints and lack of access to formal credit, they contribute to 8% of the GDP. Rightly called ‘the engine of growth’ for India, SMEs have scaled manufacturing capabilities, reduced regional disparities and balanced the distribution of wealth.

Small businesses are now being increasingly associated with innovation and employment, and the figures state likewise. The micro, small and medium enterprise(MSME) sector contributes to 69% of employment in India. With the growing penetration of technology into mainstream ecosystem, these industries are at the forefront of bringing the convenience of digitalization to the masses.

The Indian economy is expected to be a $5 trillion economy by 2025, and SMEs are cutting roads towards this goal. As we enter the first financial year post implementation of GST, some interesting small business trends are touted to play an important role for a smoother growth journey to global standards.

Here are the latest business trends that you can keep in mind while setting your objectives for FY 2018-19.

Business Trend 1: Rise of Online B2B Marketplaces

E-commerce marketplaces are gradually gaining momentum worldwide, and has branched out to B2B trading platforms. While this is still at an embryonic stage in India, there is no doubt that the potential it holds is huge. According to experts, the scope of the ecommerce B2B industry is six times bigger than the B2C industry, and is estimated to be worth $620 billion industry by 2020.

Companies such as Amazon Business, Alibaba, IndiaMart, Power2SME, etc. are popular online platforms that connect B2B buyers and suppliers to fulfill their business requirements. These digital platforms have helped small businesses surpass technical and geographical limitations to procure raw materials in bulk at reduced prices and also become official supply partners to large corporations. This is one of the hottest small business trends of 2018 that will present aspiring as well as budding entrepreneurs a level playing field with industry leaders.

Business Trend 2: Personalized Customer Outreach via Automated Tech

With the oldest of the millennials attaining 35 years of age this year, the target audience has shifted by a generation. For an age bracket that has been wrought in technology, this band of consumers need more than online communication. They seek a personalized line of contact when availing services from small businesses, with 60% of them choosing emails as a preferred way to establish this connect.

Since the millennial generation has the highest buying power in the market valued at $44 billion globally, this is one audience you don’t want to miss out on. You can target them by leveraging interactive videos, engaging images, and emails customized with these elements for varying demographics. The use of intelligent virtual communication applications will help you implement this in an efficient and cost-effective manner.

Business Trend 3: Easy Access to Business Credit with FinTech Lenders

The biggest hurdle for small business owners has always been financing. For a country with 50 million SMEs, there is an unmet credit deficit of a staggering $350 billion. Traditional lending institutions are limited by conventional underwriting that caters only to a certain strata of businesses. Lack of collateral, documentation and operational history have been crippling factors that prevented SMEs from qualifying for formal finance. This, in turn, pushed SMEs to the informal sector where the high interest rates charged by moneylenders fettered borrowers to a chronic cycle of debt.

But, FinTech lenders are shifting the narrative by leveraging technology and unconventional data points to provide affordable loans to small businesses as well as consumers. With customized credit products and zero collateral requirement, these digital financiers bridge the gap that had long existed in the market.

Business Trend 4: Big Data to Drive Operations and Decisions

‘Is Big Data too big for SMEs?’- is a question that requires intensive analysis, depending on the goals that define the small business and its operations. Many SMEs see big data projects as unapproachable and sophisticated, owing to the difficulties inherent in understanding huge datasets. However, studies reveal that a calculated use of big data has a colossal impact on the growth of small businesses and has been the chassis for many popular business models.

This business trend is expected to revolutionize the SME sector by speeding its pace of development. New-age digital lenders do finance technological incorporations if it shows a direct correlation to business growth, so you needn’t worry about the funds for investing in Big Data. Check out Unsecured Business Loans for more details.

Business Trend 5: Shifted Focus on IT Security

2017 saw one of the largest cyberattack worldwide, the WannaCry ransomware attack, that caused the encryption of data on computers running the Microsoft Windows operating system and risked the exposure of sensitive data of companies in over 150 countries. Though the attack was stopped within a few days of discovery, the total damages were estimated to be in billions of dollars.

The IT industry in India contributes to a key part of the country’s economy, a significant number of enterprises will begin to invest in dedicated security systems that focus on detection and response, a shift away from conventional systems that were based on prevention. Security enhancements offered by SaaS/Cloud based platforms have become more affordable for small businesses to establish a dominant architecture for data integrity management.

Oct 24, 2018