Government MSME Schemes for Entrepreneurs

The Government of India offers some schemes to the MSME’s as they lack in resources and Technology and need assistance from big companies. Below are the schemes offered by the Indian government to Micro, Small and Medium Enterprises.

MSME Schemes – Launched by the Indian Government for Entrepreneurs

  • Udyog Aadhaar memorandum
  • Zero Defect Zero Effect
  • Quality Management Standards & Quality technology Tools
  • Grievance Monitoring System
  • Incubation
  • Credit Linked Capital Subsidy Scheme
  • Women Entrepreneurship

1. Udyog Aadhaar memorandum
Provides ease in availing credit, loans, and subsidies from the government with mandatory Aadhaar card.

2. Zero Defect Zero Effect
Manufacturers can be eligible for certain rebates and concessions if they manufacture export goods that adhere to certain standards.

3. Quality Management Standards & Quality technology Tools
Gives SMEs opportunities to learn to maintain quality standards while implementing new technologies through various seminars, campaigns, activities etc.

4. Grievance Monitoring System
Offers a platform for business owners to check the status of their complaints and open them if dissatisfied with the outcome.

5. Incubation
75% to 80% of the project cost can be financed by the government to help innovators with implementing new design, ideas or products.

6. Credit Linked Capital Subsidy Scheme
Capital subsidy for SMEs to upgrade obsolete technology and have better means to do their business.

7. Women Entrepreneurship
Only 14% Women amongst the total entrepreneurs in India. To enable women to start, manage and expand their business, the scheme provides capital, counselling, training and delivery techniques.

msme schemes india

MSME Registration in India – Process and Benefits

MSME Registration in India – Check here Online Process & Eligibility & Requirements & Benefits

Every global multinational corporation today started small. They would have been a micro, small or medium sized enterprise at some point in their journey. MSME (Micro, Small and Medium Enterprises) have no dearth of ambition or growth plans. The founders of such companies do not lack zeal, passion, dedication and discipline. Financial aid and technological know-how can help such enterprises to scale up.

Have you Registered Your Business as an MSME?

If you are thinking, why should you do it and what are its benefits, we have written this post just for you.

Very few enterprises are aware of the benefits and the financial aid that is available to a Micro, Small, Medium Enterprise (MSME). The founders of such companies raise capital at very high costs as they rely on banks wherein, they have their current account or rely on local moneylenders for quick working capital loans.

Many entrepreneurs are not even aware of what category their enterprise falls in. You need not worry if you are one such entrepreneur. We have listed down the difference between Micro, Small and Medium Enterprises here.

What are Micro, Small and Medium Enterprise:

MSME’s are classified into 2 categories:

  1. Manufacturing Enterprise
  2. Service Enterprise.

Below is the classification in terms of investment:

MICRO SMALL MEDIUM
Manufacturing Enterprises Rs 2,500,000 Less than Rs 50,000,000 Less than Rs 100,000,000
Service Enterprises Less than Rs 10,00,000 Less than Rs 20,000,000 Less than Rs 50,000,000
Employee Strength 1 to 10 10 to 50 50+

To promote and develop MSMEs:

the MSMED Act of India enables incentive schemes and subsidies. It is important to register your MSME in order to obtain the benefits under MSMED act. The enterprise could be a sole proprietorship, partnership firm, limited liability partnership, private sector company or a public sector company.

Did You Register as an MSME in the First Place?

The process is easy but if you still require convincing as to why it is required, the following lines would be interesting:

MSME Registration Process:

If you think the process of getting registered as an MSME is time-consuming and tedious, we would like to list down the steps to let you know how easy it is.

All you need to do is follow the steps mentioned below:

  • The owner or founder of the micro, small or medium scale enterprise must fill a single form to begin MSME registration. The form can be filled online and offline as well.
  • Through an individual registration, a person can register for more than one industry
  • The form to register your MSME can be found https://udyogaadhaar.gov.in/ or https://msme.gov.in/.

Document Required for the MSME Registration:

  • Personal Aadhar number
  • Industry name
  • Address
  • bank account details and some common information.
  • The owner of the enterprise can provide self-certified certificates for the same.
  • The owner will get a registration number upon filling and successful upload of the form.
  • There are no registration fees required for this process.

Do also glance through the documents required for registration as below:

  1. Address Proof of the Enterprise: In case the premise is owned by the owner of the enterprise, all you need is the allotment letter, possession letter, and property tax receipt or lease deed. Rent receipt and No Objection Certificate from the landlord would suffice in case your enterprise is operating out of a leased space.
  2. Sale Bill or Purchase Bill: The enterprise needs to submit copies of the bill of the products/services it sold and a copy of purchase bills for the raw material it purchased.
  3. Partnership Deed, MoA and AoA: If the business is a partnership firm, it must submit its partnership deed and registration certificate in case it is a registered entity. In case the enterprise is a company, a copy of Memorandum of Association and Articles of Association, and certificate of incorporation must be submitted. A copy of the resolution passed at the latest general meeting and a copy of the board resolution authorizing a director to sign the MSME application must also be submitted.
  4. Licenses and Bills of Machinery: In few cases, the owner of the enterprise might have to submit a copy of industrial license received from the government. The owner may also have to submit copies of bills and licenses related to purchase and installation of machinery, equipment etc if required.

Benefits of MSME Registration in India:

Enterprises which register themselves as an MSME can avail many benefits ranging from lending options to cluster financing to the adoption of latest technology and quality management standard. Some of the key benefits include:

  • 50% Subsidy on Patent Registration: As an entrepreneur, you may be aware of the hefty fee that an enterprise must shell out to get a patent registered. Have you faced such an issue? With MSME registration, the patent registration will come to you at a 50% subsidy. Safeguard your IP today and accelerate your dream of becoming a renowned corporation of tomorrow.
  • Collateral Free Loans: An enterprise that is registered as an MSME can enjoy collateral free loans options which are facilitated through banks and NBFCs. Isn’t it great to avail a working capital loan or a credit line without having to put some of your assets at stake?
  • Exemption of interest on Overdraft: As a registered MSME, an enterprise can enjoy a 1% exemption on interest on an overdraft facility. Even a slight decrease in the cost of funds is extremely beneficial for small businesses and MSMEs are no different.
  • Reservation Policy: MSMEs are a labour-intensive group that generates a lot of employment and hence enjoy some special privileges from the government. The government has given exclusive rights to manufacture certain products to MSMEs. Under the Government Stores Purchase Program, the central government has reserved around 300 products exclusively for the MSME sector.
  • Technological Upgradation for MSME’s: The government, under the Capital Aid for Technological Upgradation Scheme, is enabling MSMEs to upgrade their equipment through latest technology. To do so, the government is encouraging more MSMEs to upgrade their technology and infrastructure and is enabling them to get low-interest loans from banks.
  • Protection against delayed payments: The biggest advantage of an MSME registration is the protection received from the government for delayed payments. If an MSME supplies a product or delivers a service, the buyer must pay on or before the date of payment. In case there is no date mentioned, the payment must be made within 15 days of acceptance of the product or service, failing which the buyer is required to pay a fine to the MSME registered company. This enables them to maintain free cash flow and keep bad debts to a minimum.

Types of MSME loan Options:

We will cover MSME Lending for private enterprises for you to get a gist of the loan options. The loan options available are:

  • Working capital loans: As the name suggests, this is required by enterprises which need instant capital to keep the business moving forward and to sustain their operations. They also need funds to bridge the gap between delivery of finished products and payment for the same. As an MSME, they can avail such loans at better terms and have a repayment tenure of 1-2 years. The lending is collateral free. The MSME enterprise should be in business for over a year and its annual turnover should be greater than INR 24 Lakhs. The documentation required for loan eligibility includes KYC documents, business registration certificate and the Current Account statement for the last 6 months.
  • Merchant Cash Advance: This is a form of lending wherein disbursal is quick. The MSME receives a lump sum amount required and the repayment is done daily as per the sales done at the organizations point of sale terminals. An MSME whose product or service is consumed by customer and instantly paid for through a point of sale terminal is aptly suited for such kind of loans. Do you think this is a great method? Visit Lendingkart and help us arrange capital at very good rates for you.
  • Line of Credit: Line of credit enables enterprises to have credit options at their disposal for meeting their daily expenses. While the enterprise has access to a pool of funds here, the interest is charged only when they avail a loan. The enterprise can enjoy a revolving line of credit and get a reduced interest rate for their loan. Are you looking for such loans? Know more by clicking here. While the loan is not backed by collateral, users can avail loans in the range of INR 50,000 to INR 1 Crore. The repayment tenure is 1 year.
  • Invoice Financing: Invoice financing, as the name suggests, enables MSMEs to raise capital against invoices that are yet to be cleared. It helps them to maintain their cash-flow better and manage day-to-day operations. In this model of financing, the lending organization takes a percentage of the invoice upon clearance wherein it covers for the processing fee, the principal and the accrued interest. Any enterprise which has been operational for more than a year and has a turnover of over INR 24 Lakhs can avail this type of financing. It should however have raised the invoice to a reputed corporate entity and should have valid invoices of work of at least INR 1 Lakh.

Is the Government of India helping to scale up MSMEs?

The government of India has been increasingly digitizing and accelerating capital raising processes to enable faster disbursals and help create more entrepreneurs. For MSME’s, the government is running a series of schemes as below:

PM MUDRA YOJANA:

The initiative provides funding to MSMEs whose lending requirements are less than INR 10 Lakhs. The PM Mudra Yojana takes a longer time to process but offers competitive interest rates and a relaxed repayment tenure. In the meantime, if you wish to avail an MSME loan, Visit Lendingkart.com.

SMILE:

SMILE is a Government of India initiative that works alongside “Make in India” and has a budget of INR 10,000 Crores to enable MSMEs to accelerate growth. They offer loans at 8% rate of interest and the repayment tenure is up to 120 months.

As you have read, it is beneficial to register as an MSME if you fall in the category in terms of revenue. The government has made it compulsory for large corporations to have a minimum set transaction with the MSME sector. All these factors will lead to great MSME growth. Register today to avail the benefits. If you need money right away as you register to become an MSME, please get in touch with us to avail a MSME loan.

Maintaining a Credit Score for a SME

The reality is most people do not know what a credit score is. Let’s not get into individual/personal scores or SMEs. Both are sailing on the same boat. A credit score is like a birth certificate. You know you have one, you even know the importance, but have you seen it off late? We know you must have not unless you have to submit it as a proof for some activity.

A credit score is a 3-digit number ranging from 300-900, 900 being the obvious highest. When you apply for a loans or credit card, your credit score is checked by the lender in order to ensure that you have the ability to repay. A higher credit score makes you reliable in the eyes of the lender, making it easy for loan approvals. The Credit Reference Agency (CRA) generates this score/number to indicate how reliable you have been with the past payments. Maintaining a credit score is important on individual basis, but is to be done by SMEs also, so that it becomes easy for them to avail SME loan.

Business Loan Apply Online

We discussed about credit score and stated its importance in order to share information on the vitality of the subject.  An individual can easily work on improving his credit score as he’s aware of his financial story.

We would talk nothing like the appalling website popups which make you believe in them, there’s no magic potion to improve your credit rating overnight. It is a process and you can work towards improving your credit score gradually. So, it’s in your own interest that you maintain a good credit score to make it smooth and maybe less expensive to obtain small business loan whenever needed.

The SME sector in India is huge. 42.50 million, both registered and unregistered together is the number of SME businesses in India. Collectively, it comes up to a jaw-dropping 95% of the total industrial units in India. It employs a huge workforce and hence considered as the backbone on Indian economy. Most of these organisations face shortage of funds, and they seek monetary aid from financial institutions. These lenders, primarily consider their credit score to determine whether loan should be sanctioned or not, also to decide the offer to be made to applicants.

Following are some effective tips on how you can maintain a good credit score for your SME.

Pay all your dues on time:

You score is determined on the basis of your payment history. Credit bureaus check all your previously made payments to assess or give you a credit score. All your payments are to be paid before the due date, whether they’re credit card bills or loan EMIs. Dues paid before leave a positive impact on your score. Similarly, late or payments done after the due date leave a negative impact on your score. A default can ruin your credit score for a longer period of time & you can face a lot of trouble getting out of it. Even if you manage to get out, a default stays forever.

Your business information should be regularly updated:

We previously discussed on how important it is for a business owner to keep a check on the credit score. The credit bureaus can check any reports; one cannot track or be sure about any of them. Apart from this, as a business owner you also have to make sure that all your reports reflect the correct information of your business so that you get a good score during the assessment. Information such as bank statements, balance sheets, no. of years of operation, size of the company, etc. should be regularly updated as an up-to-date profile gets a higher score. There are multiple credit bureaus so it is suggested that you monitor your scores by different bureaus to take action in time.

Not all lender report to credit bureaus, partner with the ones who do:

All your efforts may be wasted if the payments you do on time aren’t reported to credit bureaus. This will not help you improve score. In order to make sure, lenders report to the credit bureaus, partner with the bureaus who do this activity. Before you enter into an agreement with your lender or creditor, make sure they report your payment history and habits to the credit bureaus.

Monitor credit utilization:

The utilization of the available credit also impacts the assessment of the credit score. Over utilization gives an impression that your business is facing trouble in profit-making. The higher the utilization of credit goes, the lower your score will go. Limiting credit applications can also help.

Personal credit matters too:

Business and personal credit is recommended to be kept separate, but repayments for both are to be kept clean. As the business is in its initial stage, the business has less or no credit history, in that case, loans or credit cards are sanctioned on your personal credit score.

Achieving a credit score will take time, you will have to work for it by keeping your finances under observation. Once you achieve a decent score, it is vital to maintain it as your future credibility is dependent on it. In the initial stage of maintaining a credit score for your business identity or on personal level, things may seem difficult. Don’t give up, go ahead with discipline. Achieving a high credit score is possible, with a strong credit score; you can make your business achieve heights.

Top 3 Challenges Faced by SMEs in 2019

SMEs in India employ 40% of India’s workforce, employing about 106 million people. 42.50 million, both registered and unregistered together is the number of SMEs businesses in India. Collectively, it comes up to a jaw-dropping 95% of the total industrial units in India. These numbers are from the most trusted sources operating under the government. With our country developing in terms of technology through digitization, increasing FDI boosting opportunities, the last five decades have seen a remarkable change in the SME sector.

SME sector is growing rapidly and with this swift growth, we ought to address the challenges that are faced by the SMEs in India. A business needs everything from finance to manpower to administration and much more in order to start, survive and ultimately succeed in the market. Some vital obstacles the business owners face are unavailability or shortage of finance, lack of skilled/talented manpower. There are a number of challenges faced by SMEs in India, but for now we would filter down to the top 3 and most important ones.

Coping with the technological advancements:

It becomes difficult for us to manage inventory, staff, accounts, etc. all at once, and that is why humans came up with advanced software for managing business activities. Whether it is ERP or inventory or accounting software, all these are a boon to a business owner. Adapting or encouraging use of these systems can make a business run longer. Businesses nowadays rely on such software or advanced AI-equipped machines and tools. However, it is a task for SMEs to get access to new technology due to lack of capital and awareness. As per a research, about 20% of prevailing SMEs operate from rural and backward areas, this justifies the point that why there is no awareness to technological advancements. You can opt for SME loans in India; many banks, financial institutions, NBFCs have come ahead to offer loans to SMEs.

Depending too much on acquired clients:

Acquiring some big clients should not just stunt your business growth. In India, businesses or their owners have a thought process that let the business run as it is post they acquire a handful of big clients. This can limit your business & profit and the growth slows down and ultimately comes to a point where it stops. But this dependency can prove fatal if existing clients stop doing business with you for whatsoever reasons. In order to stop this from happening, try to market your products and business activities to more and more people. Spend a good budget on marketing and customer retention. Avail quick SME loans to do so as it has become easy to get loans for running your business. Get into print media, use social networks for promotions, and more such methods to add client to your existing clientele.

Grow, but do not deteriorate quality:

Any or in fact all SMEs should make sure that during the process of growth or in the times when the business is growing, the quality shouldn’t deteriorate. Remember, it was the quality that got you the clients you currently have. Your Quality is your USP, so do not compromise on it. In order to do this, you need to hire the right people who know how to keep your product quality even when they have not introduced it. Outsource HR recruiters; spend on technology in order to do so. This definitely requires finance, but it is worthy enough to grow your business.

To make your business prosper and grow in the market in today’s competitive world, you need to have a strong financial backup. Do not hit the floors when it comes to financing your business. NBFCs today provide loans to SMEs. These loans fall under the unsecured category but there are only a few eligibility criteria which a business owner has to meet which are laid down to cut down the risk on the lender’s side. Lendingkart is one such NBFC which provides MSME loans exclusively for startup owners, small business owners, women entrepreneurs on a short-term basis. The range starts from Rs. 50,000 to a whopping 1 crore. The process is quick and online, the disbursement is usually done within 3 days, depending on the completion of procedures and clearing the eligibility requirements.

Other features of the loan offers – flexible repayment tenure, zero prepayment charges, no requirement of collateral/security.  The loan offers vary from lender to lender. So, availing a quick SME loan is worthy to run and grow your business in today’s competitive world.

Why Choose LendingKart for SME Business Loans

Micro, Small & Medium Enterprises (MSME) sector is still one of the highly underutilized segments in India and is extremely essential in developing socio-economic development in India. Currently, the MSME sector which includes the Khadi, Village & Coir industries has 51 million units in it and employs about 117 million people. It also contributes to about 7% of the GDP, provides 45% of the total manufacturing output and 40% of international exports.

That said, being a small business owner in India has its own set of difficulties, mainly because it usually involves paying out of your own savings for initial investment. About three out of four small businesses in India rely on personal savings or borrowings from family & relatives to start their business with. But what would you do if insufficient funds clamp your business’ potential growth?

While you could look into borrowing from the bank, the chances of your loan request being sanctioned are extremely slim if you do not have a really good guarantor. Thus, relying on a non-banking financial organization becomes extremely important and that’s where Lendingkart can help you. What is it that makes us one of the best SME Loans providers?

Why choose Lendingkart?

Lendingkart has SME & MSME Loans for businesses who are looking for quick finance in India. Using online processes, we help speed up the process of lending money to you.

  • Ticket Value up to Rs. 1 Crore

Bust that myth which says small businesses can’t get large loan amount. At Lendingkart, we have a flexible ticket price with starts at Rs. 50,000 and ends at Rs. 1 crore for short-term, intermediate or long-term financial needs. This is why, we are a preferred choice for MSMEs.

  • Apply for SME or MSME loans online

Like mentioned earlier, we know how small businesses in India are in need for quick financing options. By opting for Lendingkart’s online loan application, you can get your loan approved on the very same day if your documents are proper.

  • Quick Loan Approvals

Post document verification, your loans can be approved within 3 days to get you your loans when you need it. Thereby, making loan approvals the most hassle-free process as required for your growing business.

  • Collateral-Free SME Loans

Every business loan provided by Lendingkart is unsecured. This means that there is no need to park collateral with us and you can get your loan when you need it with minimal documentation.

  • Best Interest Rates

With the help of advanced financial data analytics, we calculate the best interest rates we can provide you with – fair and in accordance to your business’ capability to repay the SME Loan.

  • Flexible Repayment Tenure

At Lendingkart, you get to choose how you want to repay your business loan. Choose from a loan tenure of a month to a year and choose if you must repay through monthly, bi-weekly or equal monthly installments.

  • No Hidden Costs

Barring the upfront processing fee of 1-2% of your loan amount, SME Loans from Lendingkart do not have any hidden costs.

  • Zero Prepayment Costs

Once you have enough money to repay your loan before the loan tenure, you can do it any time you want after paying the first EMI – without any worries about penalties or charges.

So, all you need to do is visit our site and apply for an SME loan! Grow your business with Lendingkart’s SME loans. It’s time to turn your small business into a successful venture.

Starting a New Business – Infographic

Starting new business is not difficult. There are seven steps you will have to take in order to take in order to become a business owner.

Business Plan

First and foremost, you need to formulate your business plan. In order to do so you need to grab a pen and paper and write down a statement of purpose, a business description, classify and clarify roles, operating procedures and have a clear understanding of the finances which include loan applications and cash flow management.

Secondly, you need to choose where you establish your business location (Headquarters). Manufacturing businesses are usually located away from urban areas.

Financing

Research will form the backbone of your businesses success. You will have to find suitable financing options and establish your legal structure in order to move ahead with your business plan. An institution like Lendingkart can help you secure a business loan and realize your business goals.

You will have to recognize opportunities such as government grants which can help you in your business finances. Define whether your business will be a single ownership firm or a partnership and then manage your finances accordingly.

Business Name

Next, the name of your business is what your customers and vendors will use to remember you. You will have to choose a name that is apt towards the business you do and or the customers you wish to serve. Do not delay once the name is decided. It is best to legally register the name of the business at the earliest.

Business Tax

A clean business is the one that lasts for long. Paying your taxes and applying for income returns, will ensure that the government has a clear picture of your books and there won’t be any locking of funds by the authorities to check your accounts. To avoid any untoward event, register your business with a PAN ID and tax registration number. Always report your business income, expenses and investments truthfully to enjoy a good business.

Business Licensing

You will also need licenses and permits to run your business which you should be able to secure from your local municipal corporation.

Once you have taken care of all the necessary paperwork, you will literally see your business take shape and hence you will soon need employees to grow your company to the size you want it to be. When you reach this stage, make sure you keep your employee responsibilities clear, concise and transparent.

This will promote a healthy work environment and thus attract more people to join you in accomplishing your dream of taking your business to new heights.

Copyright © 2019: This infographic is a part of Lendingkart.com

 

MSME Loans Within 59 Minutes: is it really possible?

The government announced a new scheme for small and medium business owners as a festive gift, ‘business loans / MSME loans within 59 minutes. The announcement had the business world buzzing with excitement as the scheme promises business loans up to `1 Crore. However, little else was clear about the due process to be followed for getting these quick business loans. In this post, we analyze the feasibility of the latest scheme and the hurdles one might face during the loan approval process. Furthermore, we will also have a look at other government initiatives for funding MSMEs and startups, and compare their performance to NBFC loans in India.

Details of the ‘59 Minutes Loan’

The loan being offered under the government scheme is mainly a working capital loan of ₹ 10 lakh up to 1 Crore. The minimum business loan rate of interest offered is 8% but it may vary based on the applicant’s credit score, business activities and other factors that determine the financial health of an MSME. There are no collateral requirements for this loan, hence making it an unsecured business loan – similar to the working capital loans offered by NBFCs like Lendingkart. Processing fees and charges are pegged at ₹ 1000 plus applicable taxes for borrowers who are accepted for lending.

Now, coming to the main highlight of the ‘59 Minutes Loan’ scheme. Participating banks offering products under the scheme are required to provide approval in principle to the borrowers whose proposal matches their product. While this approval will be given within 59 minutes, the actual disbursal of the loan will still take 7-8 working days.

Documentation required for the ‘59 Minutes Loan’

  • Last 6-month bank statement in PDF format for all business-related accounts.
  • e-KYC paper i.e. a digital version of know your customer paper.
  • Income tax returns for the last 3 years in XML format including income tax codes and e-filing details.
  • GST certification is necessary and the borrower has to provide his / her GST ID and password.
  • Ownership certificates / details of current ventures of the applicant.
  • Personal and educational details of the applicant.

The application process for ‘59 Minutes Loan’

The application starts with a ‘new user’ registration on the official website, https://www.psbloansin59minutes.com/home.

  • Step 1: Complete the sign-up process by entering your name, email and mobile number. Click on ‘get OTP’ to verify your credentials.
  • Step 2: Enter the OTP received on your phone and agree to the terms and conditions before clicking on ‘Proceed’.
  • Step 3: The next screen will ask a few basic questions which you need to answer in ‘yes’ or ‘no’ by selecting the corresponding radio selection box. Click proceed again to continue to the next step.
  • Step 4: Now, you will be asked to input your GST details, such as GST number and password, followed by income tax information. Here, you can either upload the statements in XML format or login with your ITR details such as PAN and date of incorporation.
  • Step 5: This step involves the upload of your past 6-month bank statements in PDF format. You can also login with your net banking credentials and allow the lenders to access the financial statements.
  • Step 6: Here, you provide the details of directors, proprietor and company address.
  • Step 7: Now select the purpose of your loan and provide the details of any previous / existing loans taken by your business.
  • Step 8: Select the bank through which you want your loan to be processed. The interest amount may vary from bank to bank.
  • Step 9: Pay the ₹ 1000 convenience fee, plus taxes for approval.
  • Step 10: Download your approval letter, pending further due diligence by the loan providing bank.

Potential pitfalls to be faced by the ‘59 Minutes Loan’ scheme

The thing to note here is that the ‘59 Minute Loan’ scheme is not the first initiative by the current government to ease business finance. A similar fast track business loan scheme called the Pradhan Mantri Mudra Yojna (PMMY) is already in place. The PMMY is also backed by the public sector banks and offers loans up to ₹ 10 lakh to MSMEs and startups. However, a closer analysis of the scheme reveals some major bottlenecks and drawbacks of government run financial schemes for small businesses in India.

For exahttps://www.lendingkart.com/blog/5-tax-saving-tips-for-small-business-owners-in-india/mple, since the Mudra program was started in 2015-2016, a whopping ₹ 4.68 lakh crore have been disbursed to 9.9 crore loan applicants. While the sum of loans given is impressive, simple math tells us that the average amount per application is just ₹ 47,249. So, the question that needs asking is, can anyone setup a successful enterprise with less than ₹ 50,000?

While someone may be able to setup a shop or similar retail business for that amount, keeping it up and running is not possible without some minimum working capital expenditure. Thus, the amount of money offered under the Mudra program is not sufficient for startups and MSME funding at all.

Moreover, the CBI is already investigating a senior Punjab National Bank Official for fraud after his PNB branch approved ₹ 62 lakh in lieu of 26 loan applications under the Mudra program. The charges as quoted in the CBI complaint are “without conducting meaningful pre-inspection or physical verification of spot of business or residence and without ascertaining end use of the loan amount or creation of assets from the loan amount”.

Now, isn’t that the Mudra program? The PMMY was meant for offering quick business loans without collateral requirements and stringent check and balances. Which in turn makes the ‘59 Minutes Loan’ scheme susceptible to unforeseen hindrances. Since the new scheme offers unsecured business loans up to ₹ 1 crore, bank officials are going to be even more cautious in scrutinizing loan applications. Also, similar to the Mudra scheme which was a refinancing scheme, for which the funds were provided by banks, NBFCs and MFIs under pressure from the government, the new scheme also adds the burden of funding loans on public sector banks (PSBs). Thus, given the NPA crisis faced by almost all PSBs, the 7-8 days loan disbursal policy also seems a little far-fetched right now.

Comparing the ‘59 Minutes Loan’ scheme with NBFC loans

The concept of fast business loans is not a new one and the latest government scheme is just an extension of same-day loan approvals being given by NBFCs like Lendingkart, albeit with some sugar-coating. Some of the features being touted by the new loan scheme, such as online portal for loan application and digital submission and verification of documents, are already in use by NBFCs like Lendingkart. Moreover, the simplicity and steps involved in loan application process are also fewer for NBFC business loans.

Here are some of the key differences between the ‘59 Minutes Loan’ scheme and NBFC business loans.

  • Application Process: Both use online application process, needing users to register with name, email and phone numbers.
  • Documentation: The government’s business loan scheme requires the submission of 6-month bank statement, 3-year income tax filings, GST details (including your password) and incorporation certificates along with personal, educational and financial details of the owner / partners / directors. On the other hand, Lendingkart offers loans based on 6-month bank statements and 2-year ITR returns if your revenue is less than 60 lakhs. It is not mandatory to have net banking and Lendingkart does not ask for ITR and GST in case of Green Zone.
  • Loan Amount: The ‘59 Minutes Loan’ scheme offers loans from ₹ 10 lakh up to ₹ 1 crore whereas Lendingkart has a wider scope in terms of funding with business loans ranging between ₹ 50,000 to ₹ 1 crore.
  • Loan Disbursal: If all details check out, the government’s loan scheme offers business loans within 7-8 days, which is not a lot quicker than the existing loan products offered by banks. On the other hand, Lendingkart promises the disbursal of loan funds within 3-days’ time once your application is verified.
  • Additional Features: Both, the government’s MSME loan scheme and NBFC loans are unsecured business loans. However, Lendingkart offers several additional advantages such as top-up loan, renewal upon full repayment, zero evaluation charges and no pre-closure charges. Furthermore, Lendingkart also has a dedicated mobile app, customer support and social media presence to assist customers in real-time.
Particulars NBFC Loans 59 Minutes Loan Difference
Time for Approval Same Day Approvals Within 59 Minutes Same concept
Time for Disbursal Within 3 Days 8-10 Days NBFC loans are faster by almost a week
Loan Amount ₹ 50,000 to ₹ 1 Crore ₹ 10 Lakhs to ₹ 1 Crore NBFC loans have a wider window that increases the possibility of getting a business loan
Documentation Minimal Documentation Personal, Educational and Financial documentation required NBFC business loans are easier to get
Process FinTech process Bureaucratic process NBFCs use IoT technologies to minimise delays in loan disbursals
Funding Self-funded Available from selected public sector banks NBFCs have ready cash available for disbursals whereas PSBs are already burdened by an NPA crisis
Flexible EMIs Yes As per bank rules NBFC loans come with bi-weekly and monthly EMI options for faster and easier repayment
Prepayment Policy No Charges As per bank rules NBFC loans offer hassle-free early repayment in full
Auto-renewal Available Not available NBFC business loans offer better revolving credit facility than bank loans


Advantages of NBFC business loans

In its current form, the new scheme by government is a tough sell once you go beyond the face value. Here are some of the things which an NBFC business loan still does better than the ‘59 Minutes Loan’ scheme.

  • NBFC loans are self-funded whereas the government’s scheme relies on SIDBI and PSU banks – State Bank of India, Bank of Baroda, Punjab National Bank, Vijaya Bank and Indian Bank. Hence, the NBFC business loans retain the advantage of being fast and free from bureaucratic delays.
  • The starting value of ₹ 50,000 gives NBFC business loans another advantage as it increases the probability of getting a small business loan for an applicant who may not be able to service a loan worth ₹ 10 lakh, which is the minimum under the government’s proposal.
  • In essence, the 59 minutes loan approval time is similar to same day loan approvals, as the condition of ‘pending verification’ applies in both cases. However, where NBFC business loans from Lendingkart are disbursed within 3 days of verification with attractive interest rates, the same process takes 7-8 working days under the government scheme.
  • NBFC loans offer the facility of revolving capital through products like business loan renewal and zero pre-payment charges, making them more suited for working capital finance. On the other hand, fresh loans under the government scheme will have to follow the same application, approval, processing and disbursal cycle all over again.
  • NBFCs like Lendingkart also offer monthly and bi-weekly EMIs to help businesses with extended invoicing cycles. This flexible EMI feature may not be a part of the government’s MSME finance scheme from the onset.
  • The questionable success of previous government financing schemes also puts NBFC loans in perspective, where companies like Lendingkart Finance are now offering business loans across India.

Concluding thoughts

While we should laud the government’s efforts to make India more business-friendly, only time and numbers will tell the real story here. The political detractors of the government were quick to point out that the new MSME finance scheme has all the trappings of a same-day approval loan and that it is merely a pre-poll sop. Even several bankers have questioned the feasibility of the ‘approval within 59 minutes’ approach as the public sector banks which are expected to shoulder the burden are still reeling from a bad loan crisis and the shadow effects of demonetization. The most concerning part of the scheme remain the actual turnaround time for the business loan. The disbursal time of 7-8 working days can easily stretch up to 8-12 days when you count weekend holidays and public holidays. So, in reality, getting a business loan from the bank will still remain a cumbersome task.

On the other hand, NBFCs are offering a wider range of loan options and complementary products and services like auto-renewals and zero penalty pre-closures, which are hard to ignore. Add to that the possibility of getting a business loan within 72 hours and the government’s proposal loses some of its sheen. So, when compared head on, NBFCs like Lendingkart are still offering better value to their customers until the time the government scheme matures.

So, in the end, answering the question ‘is it really possible to get a business loan within 59 minutes?’. Unfortunately, the answer is no. You can get a business loan approval within 59 minutes, but all it means is that the banks refinancing the government’s scheme will follow their usual application and verification process after that. The actual loan will only be given after the process is complete, which can take up to 12 days. You can, however, get a business loan within 3-days by signing-up on Lendingkart’s website or mobile app.

Indian Government Reduces the Tax Burden on SMEs

Indian economy has stayed robust for the past few years. Global credit rating agencies continue to display confidence in the Indian economy and the government is also optimistic about meeting its fiscal targets. This in turn has prompted the government into taking on some bold reforms to the Indian economic system in the past. In yet another move, the government has announced through the Ministry of Finance that it is lowering the rate of deemed profits under the presumptive scheme for businesses.

This is good news for small and medium enterprises operating in manufacturing, wholesale, retail and trading. Earlier, when a business opted for the presumptive scheme of taxation under section 44AD, 8% of its total turnover or gross receipts was taken as net income chargeable under tax. However, the government has announced a new incentive for businesses wherein they can reduce this tax rate to 6%.

How you can reduce the tax on your business income under the new scheme?

Well, going digital and creating a low cash environment is one of the government’s primary economic objectives. The new scheme is an incentive for small and medium businesses who conduct their business transactions through electronic mediums. A statement by the finance minister also reflected this sentiment as he noted that small businesses can save up to 30% in taxes by availing this scheme and going cashless.

To take the benefit of the scheme the precondition for traders and businesses is that all their payments should be through digital means. Hence, the deemed profit rate shall be reduced from 8% to 6% for those who satisfy the pre-condition.

Who can benefit from the scheme?

SMEs which have already moved to digital transactions will benefit the most from this scheme. The tax rebates are being given with a retrospective effect. So, if your business has been accepting payments through digital transactions since 1st April 2016, you can claim tax benefits under the scheme up to 31st March 2017.

Consequently, if you have missed that opportunity, there is still a silver lining for your business, as you can benefit from the scheme by moving your future transactions through electronic modes. One caveat of the scheme is that all transactions done through cash are still liable for taxation at 8% under the deemed profit presumptive taxation scheme.

The following table shows how a business can save taxes under the new scheme.

Particulars

100% Digital 100% Cash 50% Cash, 50% Digital

Gross Turnover

₹ 1 Crore ₹ 1 Crore

₹ 1 Crore

Digital Turnover

₹ 1 Crore Nil

₹ 50 Lakhs

Cash Turnover Nil ₹ 1 Crore

₹ 50 Lakhs

Deemed Profit @6%

₹ 6 Lakhs NA

₹ 3 Lakhs

Deemed Profit @8%

NA ₹ 8 Lakhs

₹ 4 Lakhs

Total Profit

₹ 6 Lakhs ₹ 8 Lakhs

₹ 7 Lakhs

Deductions u/s 80C

₹ 1.5 Lakhs ₹ 1.5 Lakhs

₹ 1.5 Lakhs

Taxable Income

₹ 4.5 Lakhs ₹ 6.5 Lakhs

₹ 5.5 Lakhs

Tax Payable

₹ 15,452 ₹ 56,650

₹ 36,048

Tax Savings ₹ 41,198 Nil

₹ 20,596

So, by going the digital route, a small business owner can save as much as 72% in taxes through the new presumptive tax scheme. Such a margin can be a huge relief for small business owners and Kirana shop owners who operate at very thin profit margins. A legislative amendment in this regard was carried out through the Finance Bill, 2017.

Additional benefits of the scheme

Since this scheme is aimed at bringing more transparency to the organised and unorganised small and medium business sectors, there are several other financial benefits for SMEs as well.

Raising Capital through Investment will become easier for small business owners as the profit margins improve. An investor will be more willing to put his money in a business with healthy profit margins and support from the government of the day.

Getting Unsecured Business Loans through banks and NBFCs is also supposed to get easier for SME owners with an increase in their profits. However, here non-banking financial companies are positioned better than the banks. Traditional banks in India are simply too slow for the digital initiatives whereas NBFCs like Lendingkart Finance have already embraced digital finance, here’s how.

  • Lendingkart offers business loans online through their website and mobile app.
  • From application and document uploads to tracking, approvals and funds transfer, everything is done online.
  • An SME can get a business loan within 3 days’ time.
  • Digital financing allows Lendingkart to offer lower interest rates on business loans, reduce processing charges and waive off prepayment penalties.
  • Instant refinance available upon closing an existing loan.

Raising credit rating is another side benefit of the new scheme as more profits means less credit liabilities and subsequently a healthier balance sheet. This will raise a business’s credit score and help secure more financial resources for growth and expansion.

In conclusion

All in all, the new scheme is a very good incentive from the government and shows the ruling dispensation’s eagerness for market reforms. Small and medium business owners are set to gain from this scheme both in short-term and long-term. It would be good if the government can extend the benefits of these schemes to professionals taking the benefits of the presumptive tax scheme. However, one step at a time does the trick and we applaud the finance ministry’s proactive approach to business development in India. Moreover, the financial benefits of the scheme such as easy small business loans and growth in investment prospects are definitely positive steps for the economy and the people.

How WhatsApp for Business can Benefit your Small Business

WhatsApp has effectively replaced the traditional SMS in India. There are two primary reasons behind the platform’s success – a fall in mobile data costs and the advent of affordable smartphones. The success of WhatsApp eventually invited the interest from the American IT giants and soon after it was taken over by Mark Zuckerberg’s Facebook, another social media platform. Facebook had been promoting the social media for small business promotions for some time before its takeover of WhatsApp, and naturally the development veered towards creating a WhatsApp for Business.

Truth be told, WhatsApp for Business is a more realistic social media solution for small business owners due to its real-time approach. With WhatsApp for Business, small business owners can readily connect with their target audience, which is not the strongest point of a business profile on social media platforms like Facebook and LinkedIn. In saying this, we are simply pointing out the fact that those platforms are a little more niche for a small business owner still learning the ropes of digital marketing rather than condemning them.

So, let’s have a look at the features that make WhatsApp for Business ideal for your small business’s growth.

A Free Digital Marketing Medium

As is with the regular chat client, using WhatsApp for Business is totally free of cost. This gives WhatsApp for Business leverage over other social media tools for business promotion which often require payments for promoting your page. WhatsApp for Business also effectively replaces the SMS marketing which is costly and nowadays seems positively pre-historic. In essence, with WhatsApp payments system already in testing mode, WhatsApp for Business can replace the need of having a native app for many a small business in the country, thus earning finances rather than expending them.

Create Digital Business Profiles

In today’s world, having a digital profile is essential for every business owner. WhatsApp for Business allows you to have a detailed digital profile containing information like your physical address, company email, phone numbers and social media links, without having to invest in a website or app. WhatsApp has a very stringent verification method as well. A green tick appears beside your business name only when the WhatsApp has verified its existence and credibility. This in turn cements the trust of customers in your brand.

Mass Messaging Support

WhatsApp for Business comes with some business centric messaging options to ensure that you are always there for your customers. You can setup standard responses for frequently asked questions and send them to customers with a single tap of finger by using the ‘Quick Reply’ option in the app. A custom greeting message can be sent to new leads who connect with you on WhatsApp, telling them about the nature and salient features of your enterprise. Similarly, you can also set up a custom message for off-hours or when you are busy. All of these functions make your business seem more connected and personalised.

Data Collection and Analytics

WhatsApp for Business also includes handy data and analytics tools – features that we expect to become more extensive over time – and allow you to know exactly how many of your messages were read and responded to. With these insights, you can modify the content of your messages and target more relevant audience.

Web & Desktop Apps

Always using your smartphone to respond to customers and leads can be a chore in itself. If you are more comfortable using a traditional keyboard and desktop screen, WhatsApp solves that problem for you with the Web and Desktop clients for Windows and macOS. You need to have your smartphone connected to the internet in order to access the service but that’s all that is required. It is quite helpful if you are getting a ton of messages every day and need to reply quickly and more efficiently to the queries.

All in all, WhatsApp for Business gives small business owners a platform for extending their reach without having to spend ridiculous sums of money on web development, mobile apps and assembling customer support teams. It also connects a business at a personal level with the consumer, and with a right agenda and marketing strategy, it can become a gold mine for acquiring new customers and leads.

Lendingkart Finance is an NBFC which helps small business owners integrate with the digital economy by providing small ticket working capital loans and keeping them updated about the latest happenings in digital India. To know more about quick business loans online, visit us at www.lendingkart.com

Demystifying MSME Loans / Small Business Loan

MSME Loans – Risky and Profitable Business Types

Micro, Small and Medium Enterprises are the largest employment providers in India. Their contribution to overall employment in the country is pegged at 69%. Also, the MSME sector is responsible for almost 45% of the manufacturing industry and drive 40% of our total exports. These are significant numbers, and therefore, the growth of MSMEs has been a priority of successive Indian governments.

However, for growth, the MSMEs need investment, and the readily available source of investment to them is a business loan. Banks and commercial institutions called non-banking finance companies (NBFCs) are the two main providers of business credit for MSMEs in India. An average Indian MSME needs to pass a number of financial litmus tests before it can get an unsecured business loan or a working capital loan.

Financial institutions give priority to businesses which are considered risk-free and profitable. While it can be argued that every business can be prone to risks, there are a few benchmarks which can assuage the lender’s apprehensions.

A Registered Entity

A registered business entity which complies with the laws of the land establishes a trust in your company on the lender’s part. On the other hand, when a business lacks the necessary statutory paperwork, a lender is right to be apprehensive.

Therefore, getting a business registration will not only get you faster loan approvals, but will also remove any doubts about the legitimacy of your enterprise.

Age of Business

The second factor that distinguishes between a risky and profitable business is its age. While a short-term business idea can also be profitable, the lenders usually require at least 6 months of performance reports before sanctioning a business loan or line of credit.

If you are seeking an MSME loan, then it is better to apply for a loan after completing 6 months or more of operations. Another reason to that is because financial institutions place limits on the period within which you can reapply for a loan. For instance, if you are 5 months into the business and your loan application gets rejected, a lender policy may dictate that you can only apply again after 3 months.

That is another reason why you should never apply for multiple loans from multiple lenders at a time.

Credit History and Profitability

The bank or NBFC that provides unsecured business loans will scrutinize your business account statements to assess the risk or profitability of your venture. If you are unable to maintain a consistent cash flow and retain enough cash at bank to meet your liabilities, the lender will put you in the risky category. In case you are making a good profit, the lender will readily offer loan terms.

Also, if you have a steady cash flow and cash at bank but are not repaying your existing loans on time, it will reflect in your business credit history. Such behavior will lower your credit score and increase the risk factor in a lender’s reckoning.

Type of Business

There are certain types of businesses which are considered risky from an investment point of view. For example, dealing in real-estate, jewelry, precious metals, arms and ammunition, crackers, and other perishable goods involve a high risk-to-return ratio and therefore, given lower preference by a lending firm or bank.

If your business falls into the high-risk category, make sure that you have a solid financial report card to get a business loan.

Getting an MSME Loan for your business

A non-banking financial company is more likely to offer better loan terms for a business because of its in-depth scrutiny and flexible policies towards MSMEs. Lendingkart, a leading NBFC lender in India, offers business loans with customized interest rates along with a flexible EMI schedule.

To know more, visit www.lendingkart.com