The fundamental reason behind the success of a business is its profitability, for which they need sufficient and regular infusions of capital. Even if the enterprise carries reserves from its revenue earnings to invest in working capital and new business activities, it may require a larger sum to ensure that the plans are implemented smoothly and there is no compromise on quality. This is precisely where fast business loans help.
A loan for business in India is typically used for regular capital expenses, specific project funding, purchase of new equipment and expansion of business. Several entrepreneurs also need funds to start a new business segment or ancillary units of the existing venture.
Traditional Sourcing of Finance for Business
In tune with the practices that were prevalent for decades, most business loan applicants turn to banks when they need to apply for funding. However, these traditional financial institutions ask for sizeable paperwork and guarantees before they actually disburse the loan amount. This process can be daunting for entrepreneurs who expect quick responses and smooth transactions in the age of digital technology.
What may turn out to be a setback for an applicant is that banks do not grant a personal or business loan without security. Further, for business loans, banks look very carefully at the value of the pledged asset to make sure that their lending risk is minimised.
For an example, if you mortgage your Accounts Receivable against a business loan, the bank will look into the major receivables to ensure that the entities who owe you money are solvent, and then will accept only a fraction of the total receivables to issue the loan.
Some small business owners who do not have substantial business assets may have to offer their personal resources such as deeds of residence to get the loan.
In issuing finance for business, a bank also asks for details of other records such as previous and existing debts incurred, all bank accounts held by the company, the credit card accounts and the details of Accounts Payable.
The balance sheet that lists all business assets, liabilities and capital is an important document to be submitted to the bank. Moreover, the financial statements such as Profit and Loss Account must be audited.
The New Alternative for Business Finance
For a newly set up business, collating piles of documents can be a cumbersome process. A new generation of digitally-enabled lending institutions, also known as FinTech (Financial Technology) companies, have now stepped into this void to provide fast business loans and to offer a fresh ray of hope to SMEs.
The biggest merit of these organisations is their flexibility in offering unsecured business loans. No collateral needs to be pledged while applying for the loan. The funds are granted solely based on the creditworthiness of the business. The loan application process including submission of minimum essential documents take place online. On approval, the loan is disbursed within a week.
Besides helping to solve general cash flow problems, a FinTech lender can also grant business finance to pay off older debts and enable the organisation to improve its credit score. There are instances of balance transfer where business credit card accounts can be closed off with a loan at a comparatively lower interest rate.
Working Smartly with the Loan– Avoid Common Mistakes and Build a Better Credit Score
To maintain a good credit score and continue improving your operations after procuring the loan from a FinTech lender, it is advisable to plan your budget comprehensively and cut some costs.
A large balance in the business account must not make one complacent or over-confident. It must be borne in mind that most of this money is borrowed and must be managed prudently to nurture the business and make the repayments.
There can be several small expenses to meet with once the fund is procured. Gradually, it may seem convenient to allocate relatively smaller funds towards immediate needs, reassuring yourself that a bulk of the loan amount that remains will be sufficient for the primary objective which the amount was availed for originally. However, such minor costs can add up to significant amounts, and a considerable portion of the funds may be washed away before one can even begin to use them for the intended (primary) purpose.
The remedy is to create strong operational controls and cash monitoring processes. If you have a separate accounts team to manage these funds, ensure that only certain personnel have the authority to release any amount for approved business activities.
As a business owner, you should have designated days of week, month or quarter to review all the important statements. Do take time to check the bills and monitor cash-flow projections against actual business volume.
Make efforts to continue saving money, foresee future needs and invest in the best opportunities for a profitable business expansion. Another golden rule is to underestimate your income and overestimate your expenses.
You should also focus more actively on marketing and building useful industrial contacts to bring in more business and avoid stressing your finances.
Paying Back the Loan
Late or missed payments on a loan will affect your business credit ratings and the company’s ability to apply for a loan in the future. The right way to manage a loan repayment schedule is by setting automatic debits through equated monthly instalments (EMIs).
A prime benefit of getting fast business loans from most FinTech lenders is that unlike banks, they do not charge their clients any prepayment penalties. If you can afford to pay back all your outstanding dues as lump sum, there is no extra fee involved. This gives you another opportunity to be debt free and to strengthen your business credit score.
The ease of getting a business loan without security helps high-potential start-ups and SMEs to materialise their enterprising plans. It is also in accordance with the Make in India culture initiated by the government.
Globally, the FinTech revolution is enabling faster growth of small businesses and enabling innovative developments in vital industries.
If you need finance for business and are hesitant to approach banks due to inadequate collateral backing, a digitally operating non-banking finance company will be most suitable to fulfil your requirements.