No Restrictions - Use the Capital for Any of Your Business Needs
Posted by Ankit Shrivastava on August 18th, 2017
In India, a small business typically receives payments from large enterprises after 90 days of raising the invoice. However, most small businesses do not have sufficient cash to manage this delay and therefore find their hands tied in even managing their routine business operations.
The problem is acute for organisations that are young and do not have a stable revenue stream. Some of these businesses could have a lot of potential for growth in future but require a lending hand during the gestation period. This is true for most young and small businesses, and capital finance in India is one area that requires a keen attention from the government and lending institutions.
The National Manufacturing Policy (NMP) announced by the Government of India aims to increase the share of manufacturing sector to 25% of the Indian GDP by 2022. It aims to set up national investment and manufacturing zones that are at par with the best industrial zones in developed countries.
Restrictions on Business Loans Granted by Banks
A major hindrance that small businesses face is in getting fast business loans from banks and other traditional non-banking finance companies (NBFC). These financial institutions have not transformed their lending practices to keep pace with requirements of small businesses over the last decade. Banks are also riddled with rising non-performing assets (NPA) from large enterprises and this has further discouraged them from offering business loans to SMEs.
Moreover, most banks want to offer secured business loans only to small businesses that have a long history of operation. Also, to make sure they are lending to the right enterprise, they have a long list of financial documents required to be submitted along with the business loan application. Most small businesses, especially those without long vintage in operations, do not have sufficient collateral to offer as security. Also, they do not meet the stringent criteria set by banks and other traditional NBFCs for offering fast business loans.
SMEs require capital finance in India for smaller amounts and for shorter durations. Mostly they need short term loans to meet their working capital needs. For instance, a small business in Delhi that is awaiting payment from a large company in Mumbai might need to pay its raw material suppliers. Also, it might need a business loan in Delhi to purchase new machinery to produce more during the peak business season.
Similarly, it might need that money to pay salaries to its staff or to even hire more talent. Generally, business loans are tied to the specific purpose for which they have been taken and the bank shall demand proof for it. For instance, if you take a loans for small business in Delhi to purchase or take on lease new machinery, the bank would demand proof of your transaction.
Fintech Lenders have No Restrictions on Business Loans
The new-age Fintech companies that have evolved over the last few years understand all challenges faced by small businesses and therefore provide capital finance in India to address those challenges. Technology plays a big part in helping them disburse capital finance in India and so their entire loan offerings are available online.
They offer capital finance in India to small businesses and their conditions are not as stringent as those of banks and other traditional lenders. They provide loans looking at the business prospects rather than going deep into the history of a business. The entire loan application process happens online and you can apply either through their websites or their mobile apps.
Only the most important financial documents such as bank statements, tax returns, KYC documents and business receivables need to be uploaded. They use big data analysis and other complex algorithms to assess the eligibility of a particular business for capital finance in India. The entire loan process is extremely quick and once approved, the business loan amount is credited to the bank account of the organisation within three working days.
The best part of taking loans from Fintech lenders is the flexibility offered in their products. Any business that has been in operation for at least one year can avail capital finance in India without any collateral. The business loan is offered at competitive interest rates, a nominal processing fee and without any hidden charges.
Capital Finance in India Serves Varying Business Needs
There are different types of fast business loans available. If we take our earlier example, a business loan in Delhi might be needed to purchase new machinery in order to produce more during the peak business season. However, to operate that set of machinery in case a small business feels the need to hire more employees, it is free to divert those funds towards payment of salaries. The conditions for repayment offered are flexible and a business can schedule payments to pay more during peak revenue cycles and conversely reduce the instalments during lean periods.
Similarly, a merchant may use more of the capital finance in India during the peak business season to expand his business but he might want to postpone the loan repayment to the lean business period. A small business that has outstanding invoices from large companies need not sell those invoices at a discount. Such a business can use its invoices as collateral and take secured business loans instead. Such a method of financing is known as supply chain invoicing or supply chain finance.
Moreover, in case a business is unable to meet repayment schedules, it can always request to reschedule the repayment of the loan. This way, the credibility of a business does not suffer and it shall remain eligible for business loans in future. Most Fintech lenders provide fast business loans between Rs 1 lakh to 1 crore and the repayment tenure varies from a few months to up to three years. There is no prepayment penalty attached in case of early closure of a loan account. Those taking loans against business receivables can also repay them in a single instalment on maturity.
About the AuthorAnkit Shrivastava
Joined: March 29th, 2017
Articles Posted: 5
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