An organisation planning to apply for a business loan must be thoroughly aware of the general application process and the documents that need to be provided to the lender. Security is a top concern for any business today, and no enterprise will want to give copies of their ID and financial papers to questionable entities.
Even when they choose to borrow from familiar banks, the hassles of printing and photocopying documents, submitting them to a branch personally or through a reliable employee and then awaiting approval of their SME loan can be tedious. It discourages many MSMEs from approaching traditional financial institutions for funds. “How to get fastest business loan” while also following a secure procedure is a priority for SME and MSME borrowers.
Fortunately, the expectation of getting a quick business loan can now be fulfilled by FinTech lenders. These digitally active NBFCs have an abridged and systematic online application process, and funds on approved applications are provided in less than a week. Furthermore, they offer loans without requiring the borrowers to pledge any security.
FinTechs do need some documents to sanction any loan. However, businesses only need to submit the soft copies with their digital application. The primary documents required for an unsecured working capital loan or any other SME/MSME loan include:
KYC Documents of Business Owner(s) – PAN Card, passport copy or a copy of any other Photo ID that is recognised by the Government of India
Income Tax Returns (ITR) – The processed ITR document copies for the last two years
Goods and Service Tax (GST) Returns – Processed returns for the past year
Bank Statements – For the previous six months
For some particular loans taken to finance the operations of schools, medical clinics, restaurants, franchises, logistics companies and e-commerce sites, the FinTech lender may need documents specific to these verticals.
As an example, a Pvt Ltd company or LLP that seeks merchant cash finance based on the payments made through cards should also submit its card settlement statements for three months preceding the loan application. On the other hand, sole proprietors (Prop) running their own shops, salons or small restaurants can directly submit their KYC documents, IT returns, bank statements and papers that corroborate the identity of their business.
What then, about the security factor here? That indeed is important – a business loan application should only be sent from a secure website that encrypts all information loaded on its servers. FinTech companies with website domain having a lock symbol and https:// prefix are authentic lenders in the credit market.
If your business has been successfully running for almost three years, and you have been complying with the tax laws of India, your chances of fulfilling other eligibility requirements for an unsecured business loan by Capital Float are high. Just gather the soft copies of documents relevant to your enterprise, and by spending less than 15 minutes on the digital application, you can send a request for the loan. You will also be notified of the approval on the same day, and the funds reach your bank account in the next 72 hours.
To know more about our loan granting process, feel free to call at 1860 419 0999.
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Achieving growth is a dream for every business, more so if it is a small or medium enterprise. Who doesn’t like expanding their production and also the revenue of their business? While business expansion is necessary, one thing which is primarily required for business growth is finance (with acumen being the second important ingredient). How does one secure business finance?
Banks and financial institutions provide the solution – business loans.
Business loans are the perfect solutions to financing which enables business growth. Banks and financial institutions lend the much-required business finance in India to business enterprises. This finance comes in two variants – secured loans and unsecured loans. Do you know what they are and how they are different?
Secured business loans
Secured business loans are also called asset-backed loans. These loans are granted on the value of an asset which is pledged as collateral for the loan. These loans are risk-free from the lender’s perspective as in the case of default by the borrower, the asset which is pledged is possessed by the bank to fulfill the loan liability.
Unsecured business loans
Unsecured loans, on the contrary, do not require any collateral or security. The loan is granted on the repayment capacity of the business which is indicated by the enterprise’s creditworthiness. These loans are granted as short-term loans which also have short repayment tenure.
Difference between the two
Both secured and unsecured business loans are fundamentally different and their differences are as follows:
|Secured Loans||Unsecured Loans|
|They require a security against the value of the loan||These loans are granted without the requirement of any collateral|
|The interest rate is low||Interest rate is high|
|The amount of loan depends on the value of the asset pledged for the loan||The amount of loan depends on the repayment capacity and creditworthiness of the enterprise|
Do unsecured loans help in business growth?
Unsecured loans are very easily available and do not require any collateral. They thus have various advantages which make them an ideal solution for quick financing. But do such loans also enable business growth? Let’s find out:
No asset backing required
Secured loans are limiting in the sense that they require business assets to be pledged as collateral. Unsecured loans are easily available and they do not require any business assets to be secured. As such these loans are not restricting. If your business is small and does not have many assets, it becomes a problem to avail a secured loan. This hinders the growth of business. Unsecured loans, on the other hand, can be availed without any assets.
The quantum of loan is not limited
Suppose you require a loan worth Rs.50 lakhs but the value of assets which are to be pledged is limited to Rs.40 lakhs. Would you be able to acquire the desired loan? Secured loans allow loans limited to the value of the asset pledged. Even in this case, the total value of asset is not allowed as loan as a margin is retained by the lender. So, if you have an asset worth Rs.20 lakhs and want a loan of Rs.20 lakhs, you would be able to avail only 80% to 90% of the value of your asset (Rs.20 lakhs in this case) as loan (i.e. Rs.16 lakhs or Rs.18 lakhs). In case of unsecured loans, the loan is granted on the business potential and creditworthiness and not limited by the value of any asset. Thus, businesses can avail an unsecured loan as per their requirement for aiding growth.
Unsecured loans are easily available as the funds are sanctioned within days of the loan application being done. As such, these loans provide the necessary funding to businesses in a short span of time which can be used to increase business profitability and boost business growth. These loans come in handy when the business is poised to grow following a surge in demand. As the loan is easily available, high demand can be met by increasing production. High demand yields better revenue for the business and enables it to grow.
Ideal for young businesses
Businesses which are still in their nascent stage require funding to expand and grow. This funding can be easily secured through an unsecured loan as it does not require any collateral, which is hard to source for budding businesses. Thus, the growth of these young enterprises is dependent on unsecured business loans.
Unsecured business loans, therefore, play an important part in the growth of businesses. Though long term secured loans are essential for long-term finance, short-term unsecured loans help businesses meet their more immediate requirements, which has a direct bearing on their growth.
NBFCs offer unsecured business loans which are also called as business installment loans or term finance. This loan offers the following benefits to businesses:
1. A loan of Rs.1 lakh to Rs.1 crore can be availed by businesses for any of their requirements.
2. There are no hidden or additional charges under the loan. Applicants are required to pay only a small processing fee of 2% of the loan amount borrowed. Apart from this there are no foreclosure or part-prepayment charges incurred on the loan.
3. Certain NBFCs use customized credit criteria while underwriting customers. The credit offering is tailored as per the applicant’s requirement.
4. The loan is sanctioned within 3 days of successful application thus providing the funds at the earliest.
5. No collateral security is required for the loan.
6. Application for the loan can be done quickly through the online medium which reduces unnecessary hassles.
Unsecured loans sometimes prove to be that important source of funding without which businesses couldn’t have grown and achieved enhanced profitability. If you are also looking for a business loan for your business growth avail an unsecured loan today!
Oct 24, 2018
Since his appointment last year, Raghuram Rajan has been making the headlines for all the right reasons. But beyond his interventions in currency markets and the macroeconomy, a steady stream of pronouncements from the RBI Governor on potential priority sector reforms should give the SME sector in India much to cheer about.
In his inaugural address, Rajan specifically highlighted the importance of SME finance in spurring growth across the broader economy:
As the central bank of a developing country, we have additional tools to generate growth – we can accelerate financial development and inclusion. Rural areas, especially our villages, as well as small and medium industries across the country, have been important engines of growth even as large company growth has slowed…
He went on to endorse receivables financing as a key policy tool to unlock timely credit to SMEs and address the massive working capital gap in the sector today:
For small and medium firms, we intend to facilitate Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned so that MSMEs are paid promptly. This was a proposal in the report of my Committee on Financial Sector reforms in 2008, and I intend to see it carried out.
On a cautionary note, it is worth noting that this is not the first formal RBI pronouncement in recent times advocating factoring or receivables-based financing as a financial inclusion tool for the SME sector. In fact, the RBI has signaled a steady commitment in recent times to SME credit growth, but its policy directives have frequently not translated into real priorities for public and private sector banks operating on the ground.
In 2013, IFMR reported that 16 out of 26 public sector banks had failed to meet their priority-sector lending (PSL) targets. Half the private sector banks also did not reach their targets, bringing the total shortfall in priority-sector lending in 2013 to USD 28 billion.
Despite these hiccups, Mr. Rajan’s strong words and visible proactivity since coming into office suggest that the RBI may embarking on a fresh chapter of promoting innovation to further financial inclusion for priority sectors. If recent sentiment across capital markets is any indication to go by, the consensus is that this Governor means business. This is good news for innovators trying to bring new and disruptive business models to sectors that have traditionally been starved for credit. But for entrepreneurs in these sectors, it could mean something more transformative – unprecedented access to an entirely new set of institutions, tools, and financial products more finely attuned to serving their business requirements and financing needs.
(Image credit: Business Today Aug 12, 2013)
Oct 24, 2018
Having a dedicated business bank account is important for business owners to effectively manage and utilise their working capital. With a simple segregation between personal and professional funds, the day-to-day transactions will be easier to track and document. It is also essential for compliance in IT returns filing and will help you to identify the correct deductions for your tax savings.
In India, small and medium enterprises (SMEs) generally use current accounts to manage their funds and to get a working capital loan. While no interest is received from these accounts, lately some banks in the private sector have started offering interest to attract more buyers for opening accounts with them. As a part of their services, the banks also provide working capital finance to their eligible customers with current accounts. However, these grants are sanctioned upon the pledging of an asset as collateral. Industrial, commercial or residential property or liquid securities have to be pledged while borrowing funds for business from a public or private sector bank.
With the availability of working capital financing solutions from digitally operating NBFCs – known as FinTech (technology) companies ¬– entrepreneurs can now have their dedicated business bank account and procure loans without pledging any collateral. These online platforms provide financial the benefits of less stringent terms and flexible repayments.
The question then is – how to choose the right bank account for business transactions? Most banks have now customised their current accounts into different sub-categories, and an enterprise can choose one based on its annual turnover and particular needs. The key expectations from such an account are:
Salary solutions for employees: You need to pay your employees on time every month, and may have to remit their remuneration through dedicated salary accounts or crossed cheques. The business bank account must make the execution of these processes simpler.
Digital banking services: In an era where all personal banking transactions can be done online, current accounts must also come with a host of online banking services. Your account must give you the flexibility of transferring funds anytime, anywhere, and of making regular payments on working capital demand loan that you may have procured from another financial institution. In addition to net banking, services such as phone banking, mobile banking and quick reverts on SMS-based queries are looked forward to as well. Mobile instant alerts on transactions must be provided by banks in the digital age.
Cheques payable at par: Your business bank account should offer the provision of personalised cheques payable at par across India. This conventional facility is good for business owners who prefer to use cheques over online banking for making payments to their employees, vendors, suppliers and to the companies that issued working capital finance to them.
Competitive foreign exchange rates: If your business operations involve buying from or selling to other countries, you will need seamless foreign exchange transactions. Choose your current account from a bank that offers competitive rates on foreign exchange rates routed through them.
Zero balance account: No business wishes to reach a point where they have zero balance in their bank account. Nevertheless, there can be tough times in the market and you may experience some strain on your finances. For emergencies, your business current account should allow you to reach zero balance even if it is for a temporary period. There should be no ‘penalty charges’ on such accounts. You can always update the balance with relentless focus and consistent efforts while working on your business objectives.
Where a zero balance account is not possible, the minimum monthly average balance (MAB) must be made affordable for SMEs. Alternatively, the penalty for non-maintenance of minimum balance must not be very high. Do not hesitate to compare business accounts of different banks on this basis. Your working capital finance provider may also be able to guide you here.
Interest rate: We had mentioned earlier that current accounts do not usually involve interest earnings. This had been the norm in the banking industry for decades. However, with an increasing competition between public and private sector banks, things have changed. All financial institutions are trying to enhance their brand image in the industry by offering products that are more attractive to prospective customers. In this race, they have started delivering interest on idle money in business accounts while also giving the flexibility of accessing the funds anytime. With interest earnings on your account, you can also speed up the payments on your working capital loan procured from any source.
Businesses do have good reasons for applying for a separate banking account, and it also proves their creditworthiness to sources of working capital loan in India. Non-banking financial companies (NBFCs) and FinTech lenders can directly disburse funds into a current account.
The documents needed to open such accounts vary from bank to bank and depend on the type of business. Those investing in their start-ups are often asked to submit copies of their latest IT returns, PAN Card and ID and address proofs such as Aadhar Card or Passport copy. Partnerships, Limited Companies, Trusts, Associations and other corporations that involve more people and hire employees need extra documentation, which among other things must also include the registration deed for the business.
Further, check the fee and applicable charges on these business accounts. There may be charges for remittance facility from other banks, for the maintenance of debit cards and duplicate or ad hoc account statements.
As a FinTech lender, Capital Float disburses loans into your accounts in a duration as short as 3 days, helping you to keep going further for the consistent success of your venture. We have an array of loan products to help you work on the seamless growth of a project that you have enthusiastically nurtured.
Oct 24, 2018