Working Capital Loan

Difference Between Working Capital Loan and Term Loan

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This is a question that many businesses will face in their lifetime, sometimes even more than just once. The need for financial support may come up a lot when you’re in the business world, so you need to set your financial sources straight and know what’s your best option for getting the funds you need. And, these term loans and working capital loans are the main factors that you need to think about when making your decision. There are a couple of differences between them, so here is all the important information you need before making the final decision.

Working Capital Loans

Working capital is a really important funding source for businesses. The working capital for them is the immediate cash they receive for the daily expenditures that the business encounters. Usually, the need for working capital shows up when businesses have to pay the monthly rent, or pay the salaries to the employees or cover some seasonal demands that have shown up in the last minute. The assistance they get from these types of external funding sources helps them to get back on track and continue with their work. A type of assistance that you can get for working capital is a working capital loan.

You need to know that you cannot use the working capital loan for new investment, to start a new project or expand the business that you already have. These are liquid loans with a short term. The period for which these loans are given is usually a year or less.

The positive side is that they are really easy to get, especially in situations where your credit score is at a good level. The paperwork is not huge since it’s a short-term loan. But, the interest rates are high.

You can use a loan calculator to estimate the requirements for working capital. The calculator will help you to analyse the inventory that has been built up, to add all of the cash that you already owe and also take in consideration the amount that you are supposed to pay to the suppliers. This helps in easier repayment of the loan that is taken.

Working capital loans, in comparison with terms loans, are relatively easier to get, especially with a good credit score. A working capital improvement is the main goal of such loans.

Term Loans

Term loans, as the name suggests, are loans that take more time, from one to ten years. These term loans are taken when you need funds for larger investments, for expansion of your business or for purchasing new machinery or tools. These loans usually involve higher sums of money than the working capital loan, and this is the reason why they are paid off during a longer period.

We mentioned that the interest rates for working capital loans are high, and this can lead people to think that it’s an expensive loan. But, with the term loans, the interest rates keep growing with the years, so in the end, you pay more in interest for the term loans when compared to working capital loans.

You have a business loan calculator which can help you in estimating the total of the repayment, along with the interest and the principal.

Because this is a long-term loan, it requires a lot of paperwork and many procedures. So, it’s not that easy to get it. Financial institutions need to check everything before approving or denying the loan request.

What’s checked?

  • Bank statements
  • Market reputation
  • Ability to repay
  • Creditworthiness
  • Collateral

The success of your business depends a lot on the funds that you use and how you tailor those funds to suit your environment. Deciding on which type of funding to get will mostly depend on what exactly your requirements will be.

When to get Working Capital loans

When to get Term Loans
  • Meet immediate financial demands
  • Pay off small amounts
  • Thinking about expansion
  • Business modification
  • Starting a new project

FAQs

1. What is a working capital loan?

Working capital loan is a loan that helps a company to fund the everyday operations. This capital covers short-term financial needs.

2. What is an example of a term loan?

A bank loan with varying interest rates, taken for starting new ventures, new projects or business expansion is a term loan. This loan needs to be paid in a certain amount of time.

3. How many business days after you submit your application will you receive a loan estimate form?

Usually, it takes up to 3 business days.

MSME Registration in India – Process and Benefits

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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.

How Can a Working Capital help Your Business Infographic

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According to a survey done by a reputed financial technology company, out of the total fund of availed working capital, a company puts 38% of it to expand operations & 34% is used for inventory & equipment purchase.

Inventory Management
If the business you are trying to establish has to keep a record of inventory, you will definitely need to embrace and adapt to digitization to accomplish efficient inventory management.

Operations
While balancing your Profit & Loss, you will have to manage the cost of operations that your business demands in order to keep running smoothly and or to cater to specific peak season work that may be critical to your business.

Import-Export Cost
If you intend to do business internationally, you will have to factor in import / export cost. Your business will need the liquidity to accept new business opportunities in international markets.

Marketing
You will need the market to know that you exist and that you are a business they can approach to find a solution to their problems. That’s where Marketing comes in. You will need to widen the visibility of your company with Outdoor Marketing to reach a wider audience.

So much work will have to be accounted for and hence timely review of the book of accounts will have to be done in order to stay on top of your business.

Recruiting Staff
Needless to say, all business grow essentially due to one very important reason i.e. its people. You will need to recruit the right people to increase the stakes of your project.

Business requires quick thinkers and firm minded businessmen. Working Capital for business can help you sail through all the costs associated with the business and give you the confidence to move ahead in business without thinking twice.

If your business needs working capital loan, visit www.lendingkart.comworking capital infographic

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

Impact of Working Capital Management on The Profitability Of Firms

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It takes a lot of courage and conviction to venture into an unknown territory leaving behind a comfortable job and an attractive package to start a business. Your business idea can turn into a reality provided you have the right vision and the financial capacity to achieve the same. Firstly a business owner has to ensure there is enough capital to run a business because it is a significant component before any investment is made.

Let us understand the aspect of working capital in a business.  A business owner has to keep working capital intact to manage costs like payroll, rent and debt payments. All businesses are different in terms of their operations. Some businesses have cyclical sales and may not have predictable revenue generation throughout the year. For instance, some manufacturing companies with cyclical sales depend on the requirements from retailers. If a retailer sells at a particular time of the year then the manufacturer will supply goods during that period. However, once the sale period is over the demand from the manufacturer also ends. During this period, the manufacturer will need working capital to pay wages to labourers. Besides the cyclical nature of the business, there are occasions when business needs are unpredictable, and there is little control over situations. The business owner may not be able to deal with such situations in the absence of working capital. It is when business owners reach out to banks and financial institutions for working capital loan for new business in India.

Get the basic of working capital

It is better to be prepared by setting up an emergency fund through the management of short-term assets and liabilities. Working capital includes short term assets of the company used for its operations on a daily basis. It is an indicator of measuring the liquidity in terms of cash required to meet the company’s obligations. The working capital management has implications on the firm’s profitability and risk as well as its value.  It is a sensitive area in the field of financial management because it can affect the firm’s success. You should be able to maintain optimal levels of working capital through various components including cash receivables, inventory and payables etc.

The working capital management should remain a higher priority for any business because shareholder’s wealth and firm’s profitability is a lot dependant on it. If you fail to manage the working capital you will default on bills on the maturity date. The best way is to ensure that the money coming in is more than the money going out of the firm. Typically working capital can be defined as the level of inventory held, where under-utilised excess inventory could become a cause of worry and shortage may restrict you from meeting the business targets. However, you can tide over the crises through a business working capital loan which is easy to acquire.

Most importantly, the ability to maintain business operations depends on the level of investment made in the working capital.  An ideal working capital can be achieved through a balance between profitability and liquidity. Remember, excessive investment in working capital may reduce the profitability of the firm but the shortage may put you in a risk where you are unable to meet obligations. Hence, working capital is deemed as an effective management technique to guarantee long-term success. Here are few ways in which effective working capital management can ensure profitability:

Managing allocation of resources

The most important aspect in working capital management is proper allocation of resources. As a business owner, you need to analyse and come out with allocation of existing resources to various areas of business deemed appropriate. This kind of analysis determines shortage or surplus in resources, and help you take desired action to bring it back to the desired ratio. This also means efficiently managing stocks so that the firm has sufficient resources to meet production or supply needs.

Maintain transparency in dealings with suppliers and creditors

One of the requisites in business is to main a cordial relationship with suppliers. With an effective working capital management system, you can ensure transparency in dealing with suppliers and creditors. If you have managed to create goodwill with your business partners, it can help you get access to easy working capital loans faster, compared to others in the market. A working capital loan for your business can be easily approved if you have a good track record with your suppliers and creditor. It also simplifies the process of availing finance.

Create a sound investment portfolio

A successful business always intends to invest in resources effectively either for expansion or achieving better standards in executing the existing projects. With effective working capital management, the business can release funds into new areas of business or enhance existing investments. Effective working capital management also ensures better maintenance of records. A clean book maintained through various working capital ratios can help financial experts and analysts get a clear picture of your business.

Impact on operational efficiency

An effective working capital management system can help in controlling resources and finances as these aspects are crucial in functioning of the business. This reflects on the operational efficiencies which lead to better performance of the entity over a longer time. This also saves on financial costs, time, effort and energies spent in managing short-term assets and liabilities. If you have a proficient working capital management it will have a positive impact on the profitability of any business organisation.

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How to use Working Capital Loans to Create a Successful Business

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Are you an entrepreneur? Do you aspire to build a great business? No matter what stage of the entrepreneurial journey you are in, working capital is one of the most vital elements to keep the organization moving ahead.

What is working capital?
For the uninitiated, working capital is the money required by a company to run its day-to-day operations. Companies that generate free cash flow are valued because of their ability to generate cash to run their operations without external help or funding. However, all businesses are not alike. While some generate recurring free cash, others operate in businesses that are cyclical in nature. They go through peak seasons and slack seasons. They experience crests and troughs with respect to working capital.

Working capital Loans
For businesses that are cyclical in nature, working capital financing enables them to tide through tough periods. € 1.3 trillion cash opportunity could be released by ensuring better management of working capital as per a PwC report. Companies, especially Small and Medium Businesses (SMBs), are using working capital loans successfully to tide through tough times. They do realize the opportunity of having cash in hand during critical times. Even in low business phases, SMBs have leveraged business opportunities by resorting to working capital loans.

How do companies use such loans for success in business?
A comfortable working capital situation enables businesses to hire better, pay salaries on time, and take on more orders or contracts. It can also help the owners of SMBs to negotiate better terms with vendors and suppliers.

Most importantly, these loans can ensure that companies are ready to tap all opportunities. The opportunity could be an expected one or it could have resulted from a macro/ policy level change.

Business owners, especially the ones running SMBs use working capital loans to augment business growth and leverage opportunities that arise when cash flows are not as seamless.

A few ways in which they use this type of loan to enable their businesses to
succeed is as below:

Managing Cash and Payments: When a company pays its stakeholders on time, it builds a great brand. Promoters of SMBs are focused on scaling the business and building great brands. Working capital loans enable them to undertake some important activities that enable them to create a robust brand. These activities include paying the employees on time, ensuring that the infrastructure and amenities are up and running for business to function as usual, and for paying vendors or honoring lease agreements to maintain credibility.

Manage Delay in Receivables: It is not uncommon for small and medium businesses (SMBs) to experience delay in payments. With a limited set of customers and not a high proportion of recurring periodic revenues, working capital loans for small businesses comes in handy to manage a slack in cash flow due to increase in receivables.

Ensure Timely Purchase, Upgrades, and Maintenance: SMBs will often have an ad-hoc method of managing purchases, upgradation of systems, and management of maintenance schedules. Working capital loans are extremely useful when the business wants to replenish stock to cater to unexpected rise in demand or buy additional inventory to fulfil such demand. Companies may also use such loans to cater to an unexpected order with very good payment terms (a good ratio of advance payments to the total). This enables them to generate good cash flows and create a better cash flow position for the future.

Launch Marketing Campaigns: Businesses looking to attract new clients, rejuvenate their brand, or increase their online presence can use working capital loans to launch a new marketing campaign or expand an existing one. Advertising, participation in events through sponsorship, direct marketing campaigns, billboards, social media campaigns etc. are among the common uses of this type of loan.

Digitization, Expansion, Business Development, Facilities upgrade: Digitization and growth hacking through a mobile interface are the order of the day. Even SMBs are leveraging digital platforms, “as-a-service” models etc. to convert large CAPEX cost into an OPEX model. Working capital loans would help companies to quickly adopt a new technology. It could be building a mobile app and leveraging the power of push notifications to reach out to customers. It may also be about reducing the spends towards IT infrastructure and applications by moving them to Cloud.

For companies which aren’t so heavily reliant on technology, these loans could be a great way to raise funds for business expansion. It could mean completion of the work on a plant at their manufacturing unit that could enhance overall efficiency by a good number. These loans are also used by companies to open a new office location that might help them to accentuate its business.

The SMB business owners could also use working capital loans for consulting and technology expertise to upgrade their technology systems, usher in automation and reduce the constant recurring cost to garner cash flow benefits in the future. They could also use it to pay taxes on time. The owners of small businesses can clear off the remaining tax liabilities before closing their book for the year.

As per a survey of bankers, nearly 17% of the SMBs and businesses use working capital loans to finance their receivables. 19% of the bankers said that it could be used for purchasing equipment or upgrading infrastructure. 20% of the respondents said that companies used such loans to build new facilities and to expand their existing ones.

To sum up, working capital loans should not be looked at as only a liability. It can ensure that SMBs can tap into a unique and rare business opportunity instantly and boost growth. It can also enable them to hire external consulting or expertise to augment their strategies, systems, and operations to grow further. Most importantly, it can ensure that their employees, vendors, and other stakeholders are paid on time. It helps SMBs to remain creditworthy and raise money at better rates when they need it. The result is that the future cash flows can be managed better, and the SMB owners can focus on core business operations to ensure business success.

A good credit score arising out of the creditworthiness and the habit of paying on time can help the business when they decide to raise capital through a stake sale. A robust business which has a good credit score often has the probability of getting more value when they raise capital through the equity route. Hence, working capital loans are a means to not only address present cash crunches but also create a brand that can itself be better valued.

Reasons Why You Might Be Failing At Working Capital Management

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Small and medium enterprises are particularly vulnerable to improper management of their assets and liabilities. Most SME assets are in the form of current assets and their current liabilities are often a source of external finance, given the difficulties of getting a business loan for such enterprises. Oftentimes, SMEs have to resort to vendor financing when facing a capital crunch. Therefore, efficient working capital management becomes critical for the success of a small business in India.

Working capital is the difference between your current assets and current liabilities. It is primarily used for supporting the day to day financial operations, such as the purchase of stock, salary and wage payments, and financing credit sales. In essence, working capital is the lifeblood of a business.

Working capital management is the managerial strategy for creating a balance between the two aspects of working capital i.e. current assets and current liabilities. Working capital management ensures that there is enough cash flow for meeting short-term debt and operating expenses. Efficient management of working capital is a part of effective corporate strategies and helps in creating shareholder value. However, maintaining the liquidity of a firm is also an important part of working capital management as increasing profits at the cost of liquidity can also have serious ramifications for an SME. In case, profits are ignored, a firm cannot conduct operations for long, and if liquidity is ignored, the firm may face insolvency. So, working capital management should be given due consideration in strategic management of a company.

If your cash flow is constantly at odds with your working capital requirements, the reason might be a de-synchronization between one or more of working capital determinants. Here is a list of working capital determinants / reasons why your firm is struggling to acquire the necessary working capital buffer for operational expenses and short-term debt obligations.

Nature of business:

The type of business your company is involved in does have an impact on your overall working capital requirements. For example, trading and investment firms very little capital in form of fixed assets but do require larger working capital funds for operation. On the other hand, firms offering public utilities do not have a huge working capital requirement but do need to invest in fixed assets. So, the first thing you need to check is whether the nature of your business is properly aligned with your financial policy for generating the working capital.

Sales and demand:

Working capital also has a relationship with the volume of sales. Again, this relationship varies based on the type of your business but in most cases requires the deployment of fixed assets to spur growth. So, if yours is a growing enterprise, make plans in advance for a continuous change in working capital needs – and how you are going to meet them – as per the existing sales and demand scenario.

Manufacturing technology:

If you are manufacturing products, using the right technology is crucial for better working capital management in your enterprise. Manufacturing has a direct relationship with increase or decrease in working capital funds. The longer the manufacturing cycle, the higher the firm’s working capital requirements. This, pick and choose the right technology to streamline your working capital and manufacturing process.

Credit policy:

If you have a credit policy that differs too much from the norms in your industry, you may find yourself having working capital troubles. It is good to be able to offer better credit terms to your buyers as the part of your customer acquisition strategies, but it is similarly important to limit that flexibility within the constant of industry norms and practices.

Operating efficiency:

Another factor that relates to the delivery of goods and services is the operating efficiency of your business. It has a direct effect on your working capital requirements. Pushing your operating efficiency to the maximum will not only decrease your working capital requirements but also improve your profit margins.

Price Level Changes:

Change in the price of raw materials, packaging for finished goods, transportation and sales costs, can also increase or decrease your working capital requirements. Being able to anticipate and adjust accordingly to these price level changes is a part of effective working capital management. If you are being let down by the volatile price level changes, consider hiring an expert to stabilize your working capital and other financials.

Supplier Credit:

A firm’s working capital requirements are also subject to supplier credit. If your supplier trusts you enough to grant higher credit in lieu of raw or unfinished goods and services, it can reduce your immediate working capital needs. So, cultivate stronger relationships with select suppliers instead of regularly switching from one to other.

Institutional Finance:

Lastly, the type of institute credit available for your business also has an effect on working capital requirements. If you can get business loans easily, your working capital needs will not suffer. But if your business loan applications are continuously being put on hold, it may not bode well for your working capital and cash flow. In such cases, try applying for a business loan with non-banking financial companies offering working capital finance for SMEs. For example, Lendingkart Finance is a FinTech firm that offers business loans up to ₹ 1 crore without any collateral requirements. Lendingkart’s business loan offers include approval and disbursal within 3-days of verification, which makes it instant business loan, faster even then the Indian government’s ‘MSME 59 minutes loan’ offer.

We hope, these pointers for identifying working capital issues will help you manage your organisation better and grow organically. To know more about working capital finance and how you can get small ticket short-term finance for your growing business, email us at info@lendingkart.com or call us on 0124-3864889.

Warning Signs That State Your Business Is in Big Trouble

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Most of the times, businesses that go into insolvency are taken by surprise on the suddenness of the event. It happens because most small and medium businesses are focused on day-to-day operations and fail to realize that there is something wrong with the larger picture. So, when the hammer finally falls, everyone is surprised and of course devastated by the blow.

While all business owners face challenges at one stage or another in their career, there are some telltale signs that can alert you about big financial troubles. Recognizing these signs also allows them to take corrective actions in time to salvage the situation. In this post, we are sharing the six things that can be a warning that your business might be in trouble.

  1. Difficulties in raising a new business loan: One of the very first indicator of upcoming financial trouble is the failure to secure a loan or fresh round of financing. If your latest business loan application has taken way too long in processing and eventually gets denied, it is time for some introspection at your SME. Lenders have pretty stringent due diligence processes and may be able to see the problems which you might have overlooked. Sometimes a lender, such as a bank, may tell you that everything is fine and to apply for a business loan again after a while. This happens because the lender does not want to push away a potential customer in hopes that you may be able to sort out the business troubles and will then apply for a fresh loan. So, never take such verbal communication for granted as it is still not a firm commitment.
  2. Lack of investors or buyers for your company: If you have been trying to sell your business through equity or direct buyouts and fail to find potential buyers, again it is a sign of troubles in your financial and operational situation. Just like financing, potential buyers also have stringent due diligence and value a business based on parameters which may not match with your internal estimations. Furthermore, sometimes a business owner in search for a buyer ends up neglecting the running of the business in the short-term. Which can significantly damage the immediate prospects of a sale and also brings down the value of the business.
  3. Frequently missing major milestones: As mentioned earlier in the article, every business has its problems and hiccups at some point, but if problems have become a norm at your establishment, it is time for checks and balances. Taking a look at the last one or two years of operations and doing a fair analysis of where you should be versus where you are may help in identifying problems in sales, product development, supply chain, working capital finance, etc. Whatever it may be, you must come up with a steady plan to overcome the problem because investors, lenders and buyers are seldom interested in excuses.
  4. Discord at the top-tier of management: The C-suite as it is generally called, is the top rung of your establishment. It is here where all the planning and overseeing happens. Sometimes, discord amongst the C-suite employees or surprise departures may also be a sign of things not going well at the company. Someone might have figured out that all is not well and has simply abandoned the ship as it begins to sink. So, whenever you lose a high-ranking employee do not just get into hiring mode, look for the reasons behind the exit as well.
  5. Accounts payable are way above normal: Accounts payables are one of the best ways to determine your company’s financial and operational health. Your accounts payable let you know about the state of your cash flow. If they keep stacking up, it means you are not generating enough inflow to be able to pay-off the debts, which is never a good sign.
  6. Very short operational runway: Lastly, most companies overestimate the time that they have got to sort out things. If your operational runway has less than six months remaining, it is a huge red flag and might even be a point of no return for your business. Having six months of cash runway is the minimum you need to get things to work again, if the cash stock falls below that, it is time to weigh your options seriously.

Moving quickly to resolve a financial crisis

If your business displays any of these warning signs, moving as quickly as possible towards a backup strategy should become your focus. If the problems are in operations or supply chain, it is time to give your teams a rap on the knuckles. Streamline your operations by cutting down manufacturing, downsizing or hiring experts. If the problems are with financing and you are having trouble raising fresh finance from the banking system, perhaps it is time to look at the ways of alternate finance for small and medium businesses available in the market.

For example, FinTech lenders like Lendingkart Finance offer short-term business loans to help businesses in managing their working capital. By applying for a working capital loan for your business you will be able to free up the cash at bank for capital investment and restructuring of your enterprise. Hence, taking correctional measures and day-to-day operations can go on simultaneously. So, consider taking a business loan from non-banking financial companies if your regular lenders are showing reluctance. Non-banking financial companies like Lendingkart also offer several other benefits like lower interest rates, flexible EMIs, zero-prepayment charges, and instant loan renewals that will help you get back on your feet.

So, do not wait before it is too late, if your business is showing the signs of trouble, take corrective steps now.

Here’s How to Secure Collateral-free Working Capital Loan up to ₹ 1 Crore

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Small business loans are both hard and easy to get. If your business has a verifiable history and you adhere to the tax and policy guidelines laid by the government, then it is easy to secure a business loan. And if, your papers are out of order, then it is a little harder to get one. Still, small business owners who are careful in managing their income and expenditure, and regularly pay due tax, can also find it hard to secure institutional finance in the current economic environment.

The banking sector in India is facing an unprecedented rise in non-performing assets a.k.a. NPAs. This has put pressure on most public and private sector banks to lend prudently. While the additional measures of scrutiny are the need of the hour, they are definitely affecting the investment environment in the country. Also, since the Indian economy is the fastest growing major economy in the world at the moment, a lack of investment doesn’t bode well for small and medium enterprises which contribute over 45% to the GDP growth.

Fortunately, the alternate finance industry has taken the mantle for providing working capital finance for SMEs of India. Non-banking financial companies like Lendingkart Finance are leading traditional banks in terms of funding and nurturing SMEs. There are several benefits of FinTech finance as it is popularly known because of its reliance on Big Data and Internet of Things.

Faster Business Loans: FinTech companies like Lendingkart are offering small business loans with a minimum turnaround time of 72 hours. This has been made possible by switching to online application, documentation and verification of loan requirements. Since, the government has also emphasized digitization in its schemes and policies, it has become easier to verify most of the financial information online.

Unsecured Business Loans: NBFCs are not only offering business loans faster but are also offering them without any collateral i.e. putting an asset up as security for the loan amount. Thus, removing one of the biggest problems faced by small and medium enterprises when applying for a business loan.

Lower Interest Rates: By eliminating manual work hours in loan processing, NBFCs are saving more in terms of operational costs. The benefits of which are then passed on to the borrowers in form of lowered interest rates on small business loans. With a good credit score and healthy balance sheet you can secure a business loan at half the rate of private money lenders.

Flexible Monthly Installments: NBFC loans are also quite business friendly as they offer multiple repayment options in comparison to bank loans which have fixed EMI schedules. For example, Lendingkart Finance gives you an option to repay your business loan in bi-weekly or monthly installments. So, if you are confident of generating revenues faster, you can also repay your loan faster. Otherwise, you can opt for a more relaxed repayment plan.

Waiver of Fees and Charges: Another benefit of FinTech business loans being online is that you pay minimal processing charges. Lendingkart has a processing fee of just 2% to 4% (depending on sanctioned loan amount), which is several notches lower than that of a bank. Furthermore, NBFCs are also waving of prepayment charges / penalties if you decide to repay your loan early.

Renewable Business Loans: A huge benefit of taking a small business loan from an NBFC like Lendingkart is that you can easily renew your sanctioned loan amount upon repayment. So, it is a kind of revolving finance facility that you are getting for managing your working capital.

Credit Score Improvement: Last but not the least, NBFCs also report your transactions to the credit rating agencies, which in turn helps in raising your credit score. So, by getting a small ticket business loan from an NBFC, you are inadvertently opening the doors to larger financial investments for your SME.

Applying for a Business Loan with Lendingkart

Lendingkart is one of the leading business loan providers in India, offering short-term working capital finance up to ₹ 1 crore for SMEs. To get a business loan you simply need to follow the following steps.

Getting your Documents in Order: Before applying for a business loan with Lendingkart, make sure that you have the digital copies of following documents handy.

  • Business registration / incorporation certificate and Company PAN Card
  • Bank account statements of all business-related accounts for the past 1 year
  • Personal / partner / director identification such as Aadhar and PAN Card

Assessing your Loan Requirements: Another thing to keep in mind when applying for a business loan with Lendingkart is that you should do a realistic analysis of your financial needs. Applying for an overly ambitious loan amount may see your application rejected whereas under applying may not fulfill the purpose for which you are taking a business loan.

Improving your Credit Rating: This is a one-off step for companies with a less than ideal credit rating. We recommend that you take steps to improve your credit rating by repaying existing debt and streamlining your finances before applying for a business loan to get the maximum benefit in terms of loan amount sanction and interest rates.

Now that you are ready to apply for a business loan, head over to the Lendingkart website or download the Lendingkart app on your Android or iOS smartphone to create a free loan account. The process for application is fairly straightforward, fill in your business details, loan requirements and upload the aforementioned documents to get an instant business loan quote. The quoted loan amount can be equal to or slightly lower than the requirement you share with us. Choose to accept the loan offer and Lendingkart will start the verification process.

You can easily track your loan application status from your Lendingkart loan account online. If all things check out, Lendingkart will credit the funds to your business account within 3 days of application.

For securing a quick, collateral-free working capital loan from Lendingkart.

Here’s How You Can Raise Funds for Your Startup

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All startup businesses begin with exciting new ideas and high hopes. However, it is also an unfortunate fact that most startups run into unforeseen financial and operational difficulties within the first year of their operations.

Business researchers often point to a number of reasons that are responsible for the failure of a promising new venture. Yet, the fact also remains that most of these difficulties arise due to inadequate capital.

Capital is the basic requirement for running any venture and no business can be expected to thrive if it does not have proper financing. That is the reason why the concept of investor funding is so strongly embedded in the startup scene. But, raising funds is not only a tedious exercise, it also determines the future of a startup venture. For instance, you may lose the control of your business by giving up a large stake in return for capital funding.

There are a number of ways you can raise funds for a startup business, such as bootstrapping or self-funding, crowdfunding, Angel investment, venture capital, working capital loans, and government programs that help MSMEs. Every one of these methods has its own pros and cons. Let’s have a look.

Source:

Pros:

Cons:
Self-funding:

Using funds from personal savings or borrowings from family and friends or both.

 -Easily accessible funds

-No bureaucratic hassles

-Flexible interest rates

 – Not feasible for large scale business operations or expansions
Crowdfunding:

Getting funds from crowdfunding platforms by making a pitch and getting capital from interested crowd funders.

 –       Helps in marketing as well as financing by creating a public interest

–       Allows you to retain control of your business

–       May help attract future investment from venture capitalists

 –       Competition is heavy due to the public nature of the platform

–       So, is the probability of your idea getting rejected due to too many homogeneous ideas
Angel Investment:

Basically, getting funds from individuals with huge capital worth, willing to invest in new business ideas.

 –       An Angel investor can also provide valuable business mentorship along with the capital investment

–       Angel investors are less risk averse

 –       The capital provided by Angel investors is often less in comparison to venture capitalists or other business funding methods
Venture Capital:

Venture capitalists are professionals who tend to invest in solid business ideas. However, they rarely seek equity and pull out when a business is acquired or upon IPO.

 –       Venture capitalists bring a huge amount of mentorship and business acumen to the table

–       They help you design exit-strategies that allow huge profit margins

 –       Venture capitalists tend to take away the control of your business in order to recover their investment quickly

–       Venture capitalists are mostly interested in large companies which have a proven business model
Working Capital Loan:

A loan from a microfinance company or NBFC that especially caters to the needs of small business owners.

 –       Loans are unsecured so there is no risk of collateral loss as is with a bank loan

–       A quick business loan can fast track your income generation

–       Helps small businesses gather their bearings before seeking higher investments

–       No legalities and technicalities in comparison to traditional bank loans

 –       None that we can think of
Government Programs:

Getting funds from the government subject to institutional scrutiny and meeting the policy parameters.

 –       Great way to source funds at low interest rates along with subsidies and other incentives –       Very slow, long, and often tedious process that may take months or even years to get an approval

So, now that you know about the various ways of raising capital for your startup business, the obvious question that needs asking is – which one is the best?

Well, if you are looking for a quick and hassle-free funding, it means you have already tapped in bootstrapping sources. So, the next best thing here will be getting a working capital loan from an NBFC.

Faster Business Loans without Security

Non-Banking Financial Companies offer loans for business without requiring a collateral. NBFCs are also business sensitive and hence provide quick business loan approvals and disbursements in comparison to traditional banks. For example, a bank may take up to 15 days to process your business loan application whereas you can get a business loan approval within 72 hours by applying with an NBFC like Lendingkart Finance.

Flexible EMIs, Interest Rates and Prepayment Options

Working capital loans for business come with the added benefits like a flexible EMI schedule, lower interest rates and zero prepayment charges. If you are a budding entrepreneur, these benefits can be a godsend for your business. For instance, the ability to customize your EMIs allows you to plan your repayment in tandem with your invoicing cycle. Lower interest rates mean you are not losing precious capital in interest payments. Finally, if at any stage your business starts generating expected profits and you wish to repay your business loan in full, there are no prepayment charges, fees or penalties.

Conclusion

Raising funds for business establishment and growth is always tricky. There are a lot of checkboxes that you need to tick before getting the capital you need. Furthermore, some of the most popular startup funding measures are also the most crowded ones as other entrepreneurs are also having the same funding ideas. Whereas getting funds by giving away equity has its own pitfalls in the long-run and can leave you without any control whatsoever over your business. Alternatively, you can get a bank loan for funding your business but that process is also marred by slow processing, bureaucratic red-tape and the huge risk of collateral loss.

So, amidst such tedious and discouraging scenarios, getting a working capital loan or a business loan from an NBFC like Lendingkart is the most plausible alternative for funding your startup. Add to that the many benefits of NBFC business loans, and the fact that you do not have to give away control over your business for getting working capital funds, and you have a winner on your hands.

Why you Should Choose a Business Bank Account for Working Capital

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In recent years, the government’s push for going digital has gained traction in both private and public centre enterprises. The financial system, be it securities exchange or taxation or transactional exchange, has come under increased legal scrutiny due to digitisation. In essence, it is a noble venture that aims to do away with age-old methods of paper banking and physical verifications, but as early adopters, many small business owners are finding it a difficult transition. One of the main reasons behind these difficulties is the single-use bank accounts for personal and professional income.

In some cases, the tax authorities and banks have opened inquiries due to a mismatch between an individual’s declared incomes and actual account activity. However, later realizing that most of these account holders are small business owners using savings accounts for their professional use. So, if you are a small business owner who is yet to segregate his/her personal and professional incomes, the time to do so is quite at hand. Also, there are several other benefits of having a business bank account than simply the convenience of avoiding unnecessary legal scrutiny.

One such advantage is having access to quick finance. SMEs in India can use a current account facility for business transactions. These accounts do not generate any interest but do give selective access to working capital finance, albeit with a catch. An business has to pledge an asset as collateral before the funds are credited to its current account. So, in most cases where an SME does not have the assets to secure a working capital loan from a bank, the owner ends up using a personal account for professional use, because there is no perceived need for him to get a current account.

However, the advent of Fintech firms like Lendingkart has changed that perception by offering unsecured business loans for small and medium businesses. Business owners can now have both a current account and an access to working capital finance without pledging company assets. Plus, these loans are offered at relaxed terms and with easy repayment schedules to ease the financial burden on SME owners.

Given this change, the banks too have adapted their current accounts divisions by creating sub-categories that cater to specific business needs. Here are some of the things that are made simpler with a business account for your SME.

  • Digital Banking Services are a part of the current account. These personalized services ensure that you can access your working capital funds anytime, anywhere. Digital banking is also a more transparent way of conducting business than the usual exchange of cash. Incidentally, a lender is also more likely to trust your business credentials if you have a well-maintained current account for your business with digital transactions enabled.
  • Salary Remittance to Employees is also simplified by using a business bank account with facilities like digital approval of paychecks and invoices and real-time transfer of funds to dedicated salary accounts.
  • Checks Payable at Par is another of business bank account advantages that can help in streamlining your financial transactions across state borders.
  • Personalized Forex Rates for businesses who have clientele outside the country are offered by several banks. This facility helps in seamless international exchange of monies.
  • Interest Earnings, while not a traditional feature of current accounts, is also being explored by several public and private sector banks to market themselves as more business savvy alternatives.

So, we hope these are reasons enough for you to switch your business dealings to a current account and reap the benefits for your SME. In case you need a quick business loan you can always apply for one with Lendingkart by visiting our website at Lendingkart.com or downloading the Lendingkart Finance app on your Android device. We offer business loans at lower interest rates without requiring any collateral and disburse funds within 3 days of document verification.