Category: Loan

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Ways to avail working capital finance

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Small and Medium Enterprises (SME) and Micro, Small and Medium Enterprises (MSME) are very significant in India as they give employment and aiding the evolution and development of the country’s economy. All businesses need a good pouring of working capital for the fluid operations of its daily activities. Many companies require working capital loans at regular intervals. For example, the manufacturing industry is bereft of a regular income for the entire year; they are confronted with money paucity due to cyclical sales which hinge on the needs of the retailers. When sales are not up to the mark, manufacturers require working capital finance to meet the short-term functional expenditures. These costs could be rent and payroll to tax and debt payments.

Types Of Working Capital Loans

The 4 major working capital financing options are term loans, business credit cards, trade credit, and invoice financing.

Term Loan: Generally availed for one to ten years. This kind of loan is utilized to finance big investments, such as business expansion, acquiring equipment or tools etc.

Business Credit Cards: Commercial banks provide business credit cards with a whole set of features and benefits. This credit card makes working capital financing accessible. Companies are provided certain restrictions on spending on the cards and have to pay interest just on the amount spent.

Trade Credit: A convenient alternative of short-term working capital financing and the least costly one. It happens to be a business-to-business (B2B) agreement where the buyer get supplies from the supplier sans paying upfront; the supplier is paid back at a later date (ranging from 30 to 90 days) after the buyer has manufactured and sold the goods. Also, the buyer is supposed to pay interest for this kind of credit.

Invoice Financing: This kind of financing permits businesses to take money against customers’ unpaid invoices to bridge fiscal liquidity gaps when customers pay after a long time for goods and services. The lenders take a cut from the invoice as service fees.

Ways to Apply For Working Capital Finance?

Companies have to be in operations for a year at least to become suitable for working capital loans. Banks and non-banking financial institutions can verify the borrower’s credit history, credit rating, trading history, financial muscles, assets, liabilities, income, and profitability while going through the loan application. So, business owners should assess their loan suitability prior to applying for working capital finance.

Documents Needed to Get Working Capital Financing

  1. Identity, income, and address proofs
  2. PAN card
  3. Passport-size photographs
  4. Partnership deed
  5. Certificate of registration and certificate of incorporation
  6. Income statement and Income Tax Returns (ITR) of the last 3 years
  7. Financial audit reports of the last 2 years
  8. Memorandum of Association (MoA) and Articles of Association (AOA)
  9. Credit Monitoring Arrangement (CMA) report, if needed
  10. Last one year’s loan statement with sanction letters especially the ones from other credit institutions
  11. Company letterhead having names of all current directors

Merits and Demerits of Working Capital Loans

MeritsDemerits
Businessmen get convenient and fast access to working capital finance to meet their companies’ short-term activities financing requirements.At times linked to a business owner’s personal credit, so, if there is a delay in payments or missed payments, his or her personal credit score gets negatively impacted.
If it is an unsecured working capital loan, a company gets to secure the loan devoid of any collateral.Only companies having a high credit rating are suitable for unsecured business loans. The ones having an uncharitable credit rating must furnish asset(s) as collateral to avail working capital finance.
This permits business owners to have control over their companies even if they badly require funding.To offset credit risks, the borrowers are levied high-interest rates which can be a bit disadvantageous for business owners; as the debt burden swells, the prospects of defaulting on payments go up.

Last but not the least

Despite certain disadvantages, working capital loans are a viable alternative for businesses in financial distress. Companies having good credit rating need not furnish any collateral to avail working capital financing. Similarly, short-term loan borrowers need not be anxious regarding long-term EMIs. Companies into seasonal operations can meet their daily functional expenses during unstable phases with working capital finance. Also, working capital financing can be utilized not just for daily functional requirements, but also for parking money in future business operations. Though there aren’t any limits on funds utilization, it’s better to utilize the same simply for legal business requirements.

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Tips to remember while applying for loan

business loan

These days there are several types of business loans and lending options. Therefore, small business owners can easily avail these facilities in comparison to others. Despite having myriad options, becoming eligible for a business loan can be a bit challenging. So prior to taking a final call regarding a business loan, it is advisable to gauge your eligibility to ensure that you are not walking down the wrong path. To secure cent percent loan approval necessary documents together with proper timing and a good CIBIL are required.

Answer properly on loan application form

Business loan application forms differ from one lender to another, however they have similar questions for which you should have appropriate answers. If the answer is found unsatisfactory then it can lead to the rejection of your loan application. The information normally sought by lenders are:

  • Reason for availing the loan
  • The way you are going to utilize the loan amount, in case it is permitted
  • The net revenue of your business
  • The inventories/machinery you are supposed to buy, and your suppliers
  • Your clientele
  • Any other business debt incurred by you
  • Staff information
  • Personal history

Sound business Planning

Lenders need a superior and successful strategy to be presented along with the loan application. The strategy has to have anticipated budget reports such as advantage and disadvantage, revenue, and fiscal record. The lenders will also require a credit report from every three important customer CIBIL score offices prior to accepting your loan application. Any negativity on your credit report can seriously affect the prospect of availing loan. So, prior to applying for a loan, just examine your CIBIL score yourself and rectify the problems (if any) before going ahead with the application.

Lucidity of cash inflow

A business with poor cash flow is normally construed as a risky proposition by the banks. This is due to the fact that the bank would think the business would give more priority to your professional expenses than repaying the credit. They would also evaluate bank statements of the business and personal accounts to understand your monetary position thoroughly.

It is possible to better your cash flow (if it is on the lower side) by performing a cash flow evaluation of your business, devising goals, and drawing a clear cut payment plan for your business.

Offering guarantee against loan

In order to be in the safe zone, banks will seek a collateral against money being lent. This is a good option to reduce risk factor. The collateral being offered has to a perfect cover for the money borrowed so as to convince them that their money won’t sink.

The collateral could be anything from a real estate property to expensive equipment or machinery related to your business.

Furnish right documents

You are required to give a few documents to showcase the strength of your business and your ability to pay back the loan. Documents to be provided again varies from lender to lender. The documents needed comprise certain legal and personal documents.

The legal documents needed are:

  1. Business licenses and registrations critical to operating business
  2. Articles of Incorporation
  3. Copies of contracts entered with third parties
  4. Franchise license/ agreement
  5. Commercial Leases
  6. Documents from the local body confirming the permit (in case of industry)
  7. The application forms can be perfect to state your projected financial statements
  8. Bank Statements
  9. Balance Sheet
  10. Income Statement
  11. Cash Flow
  12. Last year ITR documents

Compare your lending alternatives

Upon convincing yourself to go for a business loan, you are required to perform in depth research regarding the borrowing alternatives before you. There are nationalised banks to NBFCs and DSAs for the purpose of business loans. To take the first step, prepare a list of banks and lending institutions giving the type of loans you require. Then juxtapose these options with factors such as loan amount given, interest rate, flexible principle for approval and easy and convenient terms & conditions. In case you are still in a dilemma take the help of an expert.

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Is pitch-deck sufficient to receive financial aid from investors?

Is pitch-deck sufficient to receive financial aid from investors?

Raising funds is no child’s play. As for attracting Seed Funding from the Venture Capitalists (VCs), a robust pitch deck offered by highly ambitious entrepreneurs might look good. The excellent tones coupled with incredible presentations will go a long way in making good impact upon the investors. Each entrepreneur need to come out with stories that catch everyone’s fancy. However, is that sufficient? The answer is a strict no. A pitch deck might grab attention, however, that will not convince investors to jump into your venture. The pitch deck has to be accompanied by an excellent business plan. It is common knowledge that Venture Capitalists want those firms with solid foundation and an excellent track record. Also, they want companies that has the potential to increase the profits or Return on Investment. Mere lip service will not be sufficient to convince the investors and VCs want assurance that their money won’t sink in this venture. .

Things to factor in while investing in a company

Firms with streamlined operations

it is to be remembered that the angel investors do not want to put their money in a risky venture. So, a company has to prove its credentials. They want companies with attractive portfolios and highly skilled managers who have the ability to enhance the revenue potential of the business.

Promising outlook

In case your start-up looks very promising and it is trying to garner a large customer base, then the same can impress the investors and they might take keen interest in your venture. So indulge in an in depth analysis of the market conditions and the kind of traction you can gain among your customers. These things are appreciated by the investors a lot.

Products holding a lot of promise

As we all know that the market is crowded. In such circumstances one needs to have unique ideas and innovative skills to stand apart from the crowd. Further, you need to ensure the products or services offered by you provide viable and cost-effective solutions to the existing problem.

The strength of your team

Investors are highly likely to put their money into a skillful team with qualified members working in a close-knit surrounding. So, it is necessary for the organization to have a dedicated and hard working team that can perform any job efficiently. There is a perception among investors, which is cent percent right, that diligent and educated team members can script success stories constantly.

Venture has to be risk-free

Anyone wanting to invest would be wary of the risk factor involved in the venture. If the venture is fraught with danger then no one would like to part with their hard-earned money. So, any negativity regarding your new venture makes it difficult for you to find Venture Capitalists’ funding.

Display a proper illustration of your capabilities

The commercial viability surrounding your venture can only be established if you and your team members showcase your ideation capacity and problem-solving skills clearly. Hence, an overall planning to make things work and provide the right solution go a long way in convincing investors about your business strength.

No legal issues

Nobody wants to touch a business having legal complications even with a barge pole, least of all investors. Hence, an organization mired in legal issues would be a strict no for investors or VCs. Your credibility is at stake and that is akin to suicide mission for fund investors.

Last but not the least

It does not matter whether you are an upcoming entrepreneur or an established one, putting up a good show is imperative. A pitch deck is a must to break ice with the angel investors, but this alone won’t suffice as your skills and expertise also matter. You have to convince the investors that you have it in you to go the distance. So, consider all these aspects before looking for an investor.

Frequently Asked Questions

Q. Is seed funding relies solely on pitch decks?

Ans. Not really. Seed funding requires a lot more than pitch decks. In fact, commitment on the part of entrepreneurs to take business to greater heights and dedication to convince investors that their money will not go down the drain are also required.

Q. If my company has a legal issue will the investors put in money?

Ans. No way. No investor would love to invest in a company fraught with legal complexities.

Q. Is a team must while initiating a project or a plan?

Ans. It is not mandatory but desirable as people tend to get impressed by a group of people working together for a common goal. A unified outfit comes across as very ideal to the investors.

Q. Can I dabble upon something that nobody has done before?

Ans. Yes, you can. A fresh idea with a vibrant approach can trigger interest among investors. However, the plan has to be convincing and very much in the realm of possibility.

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What is loan against Bonds?

What is loan against Bonds

A Bond is a fixed income instrument that is given to a borrower by an investor. 

Bond is like a loan which you take from an investor. For eg. if you buy a Bond from a company, then you have that amount to the company, and like any other loans you earn an interest on your investment.

What are the documents required for loan against shares?

For an Individual borrower

  • PAN Card
  • Aadhar card
  • One Cancelled cheque/ Bank Statement

For a Company Borrower

  • MOA/AOA
  • List of Directors
  • Shareholding pattern
  • Board Resolution
  • PAN Card and address proof of the company & Director
  • Cancelled Cheque/ Bank statement

FAQs

  • What is loan against securities?

Loan against securities is available in the form of an overdraft facility which is pledged against securities like shares, units and bonds. Loan against shares/bonds/Mutual Funds 8is basically a loan where you pledge the securities you have invested in as collateral against the loan amount. A loan against securities is the best way to make your investment work harder and smarter than you.

Loan against securities have following features and benefits-

  1. It has High Loan Value as it is up to 10 crores.
  2. Dedicated relationship manager is available 24/7 to assist you with all your request.
  3. Nil part payment and foreclosure allows you to repay the loan at your convenience, as and when it’s feasible for you.
  4. Online account management is there, as you can manage your account from anywhere. Easy documentation is there as it does not require any financial document to avail ona against securities.
  • What is loan against Shares?

Loan against shares enables you to borrow funds against listed securities such as shares, Mutual funds, insurance and bonds to meet your current financial needs. 

Its Features and Benefits

  1. It has High Loan Value as it is up to 10 crores.
    1. Dedicated relationship manager is available 24/7 to assist you with all your      request.
    2. Nil part payment and foreclosure allows you to repay the loan at your convenience, as and when it’s feasible for you.
  • What is the interest rate for loan against asset?

Where a borrower pledges an asset as a collateral. With this type of loan, the borrower gts access to a high loan amount at affordable interest rates. A borrower can avail upto 80% of the asset value. Some of the common type of loan against asset includes-

  1. Loan against commercial and residential property.
  2. Loan against cars
  3. Loan against investments such as fixed deposits.
  4. Loan against securities like mutual funds, shares, bonds, insurance policies.
  5. Loan against valuables such as gold.
  6. Loan against investment such as Fixed deposits.
  7. Loan against valuables such as gold.
  8. Loan against Land.
  9. Loan against future payments such as the rent of commercial properties.
  • What is a secured Loan?

A secured loan is a type of loan in which a borrower pledges an asset such as car, property, equity, etc against that loan. The loan amount made available to the borrower is usually based on the value of the collateral.

Types of secured Loan

  1. Real estate, including any financial equity earned since purchasing the residence.
  2. Bank account such as savings accounts and fixed deposits.
  3. Commercial and residential property
  4. Private vehicles.
  5. Stocks, mutual funds, or bond investments.
  6. Insurance policies, including the insurance
  7. Precious metals, high end collectibles, and other valuables.

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