MSME Loans

MSME Loans Within 59 Minutes: is it really possible?

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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

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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

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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

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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