What does Cash Credit mean?

As business owners, we can use a financial instrument called cash credit, a short-term loan to finance our company’s working capital requirements or operational expenses. This facility allows our companies to withdraw money without keeping a credit balance but only up to the borrowing limit. “Working capital loan” is another name for this facility. The interest is charged on the availed limit out of the total borrowing limit.

What does overdraft mean?

Generally, banks and financial institutions provide an overdraft facility to individuals and companies with good relations. This facility allows us to withdraw over the amount deposited in our bank account. The bank charges a pre-specified interest rate on the amount overdrawn. Moreover, there is a pre-determined authorised limit dependent on our relationship and history with the bank, up to which we can overdraw.

How is Cash Credit different from Overdraft?

Cash credit and overdrafts differ in terms of purpose, interest rate, duration, security, limit, etc. Let us see some significant points of difference between the two facilities.

Why choose FlexiLoans?

As business owners, we require business loans tailored to our needs and requirements. We at FlexiLoans have built a technology-powered online business loan platform by taking note of entrepreneurs’ financial needs. Through this platform, we empower small businesses, entrepreneurs, and MSMEs by providing easy, quick, hassle-free, and customisable collateral-free business loans. Along with this, we have minimal documentation for loan processing. We understand that businesses need loans on short notice and thus offer quick disbursal of loans, i.e., within just 3 days. Apply for a working capital loan, line of credit or unsecured business loan in Jaipur, Ahmedabad, Delhi, Chennai, and more!

Conclusion

Now that we know the difference between cash credit and overdraft, we can decide whether to avail of the former or the latter. Moreover, we need to consider the interest rate the concerned institution charges, how we wish to utilise the funds, and the limit we get sanctioned. A clear understanding of such grounds will assist us in choosing the most suitable instrument of the ones available which are best suited for our entrepreneurial needs.

FAQs

What are the benefits of cash credit?

Cash credit comes with a minimum commission charge and can be arranged easily with flexibility. Moreover, interest payment on cash credit is tax deductible, reducing your business’s tax liability.

How is interest on overdraft calculated?

Interest on overdrafts is calculated based on the average daily balance method wherein the daily closing balance is considered.

What happens in the case we miss overdraft repayment?

In this case, the bank or financial institution can deduct the outstanding amount and the interest rate from our bank account.

For what kind of working capital needs can we avail of cash credit?

We can use the sanctioned money to finance sales, procure raw materials, pay salaries and rent, store and warehousing and maintain inventory.

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Lenders typically view small business loans as high-risk ventures, so small enterprise owners frequently need to look into an alternate source of finance. Small venture entrepreneurs may find it challenging to obtain funding from banks due to their low assets, short credit histories, and inadequate eligibility for a business loan.

Why Look for Alternative Sources of Finance?

Small business holders may wish to look into alternative financing for several reasons.

• Lack of resources

Many small enterprises lack sufficient assets to use as loan security, so they seek collateral-free business loans. Since traditional lenders are often unwilling to assume the default risk, obtaining a loan may be challenging.

• Inadequate credit history

Many small businesses lack a credible credit history to prospective lenders. So, they may find it difficult to get a loan or even have a line of credit accepted.

• Excessive interest rates

Traditional bank loans charge hefty interest rates. Alternative sources of finance may offer loans to small businesses at a reduced or no interest rate at all.

• Long-time process

Applications for ordinary bank loans can take a long time and lack a guarantee of approval. Alternative financing providers offer a speedier process and a better loan approval rate.

Alternative Sources of Finance for Small Enterprises

If you are having problems raising money for your small enterprises with traditional sources of finance, here are some funding options you can consider.

Borrowing from friends and family

It is the best option for lever collateral and interest-free funding from near and dear or close family members. This is preferable in the form of small business loans and term loans for short-line credit.

Pros

• Depending on your relationship with the lender, small business people might be able to obtain a loan with a significant payback period and no interest. Both small businessmen and lenders/friends can agree on any conditions they like.

Cons

• It might get embarrassing or unpleasant with friends and family. If you fail to pay back the loan for any reason, you may put someone you care about under financial strain.

Crowdfunding 

Launching a fundraising effort might be a great approach to getting the sources of finance for small businesses. Firms should consider using it, especially if they have a loyal customer base. It helps to have a solid plan for starting a crowdfunding campaign advertising a business loan.

Pros

• There may already be people who would be willing to support you.
• The interest rates are cheap or negligible.

Cons

• It is a time-consuming process that requires a lot of effort.
• It might not be the greatest choice if you require money in a short period.

Business grants

Business grants are disbursed by the central, state, or local government in the form of forgivable and subsidized rates loans.

Pros

• They are interest-free or have a reduced rate of debt as compared to the market rate.
• They come with repayment relaxations.

Cons

• Getting grants may be challenging.
• It might not be accessible everywhere.

Angel and private equity investors

Individuals or businesses specializing in funding startups are known as venture capitalists or angel investors. Small company owners who wish to cooperate with one of these individuals must show them why they would benefit from doing so. Typically, a growth plan is required to capture this investment opportunity.

Pros

• It is interest-free debt.
• It supplies frequent and more funds than other sources of financing.
• It also provides guidance and mentoring.

Cons

• It requires you to give up a portion of your business’s equity.
• Finding a venture capitalist or angel investor interested in your business might be difficult.

Online lenders for small business loans

The most acceptable alternative sources of finance for small enterprises are online lenders. By applying for business loans online, i.e., in paperless mode, obtaining these loans is easier than getting conventional bank loans.

Pros

• Obtaining these loans is easier than getting typical bank loans.
• It has an easy application procedure.
• You are fully aware of what you are receiving.
• Customer service support is also there.

Cons

• It comes with higher interest rates than conventional bank loans.
• It also requires security or collateral.

Conclusion

Financing options available for small business loans are changing, and the current status of the economy might make getting a loan seem like a nightmare. There are certain finance alternatives to traditional loans for small businesses and MSME units if they are having trouble getting a bank loan.

Small business owners should look into alternative financing options to meet their operational needs. Flexiloans offers hassle-free small business loans and MSME loans to resolve your credit needs in no time. With our help, you can forget financial woes and focus on scaling your business.

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Operating retail businesses can be a challenge, albeit with plenty of growth and scope for success. 

As a retail business, you might need funding for a variety of purposes. From purchasing inventory to marketing and advertising spending, adequate working capital is the secret to growing your retail business in India. 

Unfortunately, the business loan eligibility criteria for retail businesses involve multiple tax-related conditions from the banks. This way, many businesses are unable to secure the funds due to their past business performance. In that case, it is best to explore the other avenues available to you. This article covers the top 5 retail financing options for small business owners. 

What are these options and how can they benefit you? Let’s find out. 

1. Personal Loans 

Technology, manpower and finance are crucial components of any retail business. A good retail financing option, personal loans are used to sustain the business and invest in growing infrastructure.

It is an effective alternative to traditional business loans in India. Personal loans enable business owners to set up a corpus of funds to strengthen their operations, delivery and sales. 

These are usually unsecured loans, and it makes sense if you’re investing the money to grow further. 

You don’t need to put assets at risk, with highly-flexible loan tenures and repayment options. Interest rates for business loans in India are often a big hurdle for entrepreneurs.

2. Business Line of Credit 

A business line of credit is similar to credit cards, with a revolving type of loan. It allows the business owner access to a certain amount of money to meet the immediate requirements of the business. Contrary to traditional business loans, this retail financing option allows the borrowers to withdraw small amounts of money periodically. Borrowers will pay interest only on the amount they withdraw, rather than paying the entire corpus amount. They further balance it by repaying the amount being withdrawn. Borrowers need to furnish a minimum payment on a monthly basis, in order to avoid higher interest rates. Such types of loans are usually taken for a period of 10-15 years, and usually offer better repayment and withdrawal terms. 

3. MUDRA Loans 

A new type of retail financing option, Mudra loans are a government credit scheme offered as part of the Pradhan Mantri Mudra Yojana (PMMY). Also known as the ‘Micro-Units Development and Refinance Agency’, it allows business owners to apply for SME business loans ranging from Rs. 50,000 and Rs. 10 lakhs. Available to all Indian citizens who are eligible for getting loans and have a business plan that generates ongoing income, the MUDRA loans are gaining a lot of popularity lately. Some common industries that are eligible for business loans under this scheme include shopkeepers, business vendors, small-scale manufacturers, and service-based businesses. The minimum eligibility criteria to avail of these loans is 18 years, whereas the maximum limit for the same is 65 years. You’ll need to furnish documents such as your ID and address proof, alongside passport-sized photos, to avail of this option. 

4. Equipment Financing 

Equipment financing loans are financial instruments that help entrepreneurs purchase new equipment and machinery. You can even avail of equipment financing for upgrading existing machinery. This retail financing option is ideal for both SMEs and large-scale enterprises, apart from offering several tax-related benefits. While its utility is the same across all major businesses, factors such as interest rates, loan amount and tenure may differ. It usually depends on bank to bank, as to what kind of interest rates they charge. Most banks have set 21 years as the minimum age requirement for availing of equipment finance loans. These people should usually be running big corporates, partnership firms, and sole proprietorship firms. While it is not always a major criterion, some banks do ask for your ITR and other related documents to grant these bank loans. 

5. Angel investments 

This is a common retail financing option that has been utilized by small businesses and start-ups for years now. It is one of the most popular ways to raise money for your business. Angel investors are individuals with a high amount of disposable income who want to invest in high-growth businesses and SMEs. Apart from returns on their investment, angel investors often look for companies that bring innovation to the table. So if you’re a retail business with an innovative product/service, angel funding is for you. The Indian angel investing landscape has grown exponentially in the last 5 years, with several investors jumping onto the bandwagon. Angel investors usually purchase a minority or majority stake in the company, alongside financing the business. They also usually get a share in profits for the same.

Bonus Retail Financing Option: 

6. Unsecured SMB loans

Unsecured are another retail financing alternative you can check out. If you wish to increase your bottom line and boost business, this is the way to go! It is a rather straightforward financing option and can be used for any activity related to your business. 

Some of these include:

• Buying bulk inventory and equipment
• Stock refilling based on seasonal/peak demand 
• Improving interiors, fixtures and adding bespoke signages in the store/outlet
• Spending on marketing and online advertising 
• Hiring and scaling operations 
• Paying electricity, water and other utility bills. 

The application process for SMB loans is simple, and you can apply for them instantly. It, however, often has high repayment and interest rates.

Endnotes

So these were the top 5 retail financing options for you to explore. If you are a retail entrepreneur and want to grow your business further, do check out these options. 

Flexible and easy, these financing options often come with the promise of maximizing profits and brand identity.

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Abhishek Kothari, co-founder of FlexiLoans was invited as a guest panelist for IT Management Conclave 2018 by SP Jain School of Global Management. With FlexiLoans being in the space of Digital Lending and FinTech the inputs given by our co-founder were really apt for this event. Along with, FlexiLoans has been certified a ‘Great place to work’ by ‘Great Place to Work Institute’ hence giving insight on leadership and talent management by Abhishek Kothari helped with credible inputs at the event.

“With great power comes great responsibility” – Spiderman. The growth and power with which the digital era is growing can disrupt the economy for the good but along the road, enterprises need to recognize their responsibilities to ensure the smooth sailing of this change.

Whilst the market for the digital age has been growing manifold the challenges and opportunities have also increased citing a need to address these topics. When big players in the market organize such an event to ensure the smooth facilitating of leadership and governance in the digital age how could we miss an opportunity to attend the event and represent FlexiLoans?

As the name of the event ‘IT Management Conclave – Leadership and Governance in the Digital Age: Building Successful Enterprise’’ the main highlight of the event was how players adapted to the changing technology, penetrated through them to ensure the optimum use of their resources. Another highlight of the event was to talk about the challenges different companies faced and what they did to combat those issues. Lastly, topics on governance and security measures were spoken on a digital age and security go hand in hand.

THE MAIN IDEA BEHIND THE EVENT

The mechanization of work and the digital disruption of business models place a premium on leaders who can bring about a transformation in the system and place a positive outlook. With digital age changing almost every day it is not easy for enterprises to leave behind the traditional old methods and adopt new ones. Thus giving rise to an event like this where such topics were addressed as to how to combine traditional and digital qualities to run a better venture. IT leaders and professionals need to reset governance based on outcomes that deliver sustainable enterprise value fit for digital business.

THE KEYNOTE SESSION – PURSHOTTAM PURSWANI

The main idea of the keynote speaker was the address the issues businesses faced and how to go about them and build a better digital presence online. Some of the main topics he highlighted on were

• Identifying a change from the traditional to the digital age
• How to go about the leadership once the digital platform has been recognized
• Work on changes and innovations with regards to the digital age
• Governance required for the same

THE PANEL DISCUSSION

The panel discussion consisted of some great entrepreneurs from the field of SME, Fintech, who engaged in conversations and topics revolving around “Building Successful Digital Enterprise.” covering areas such as diversifying the business model through creative partnerships, strategic collaborations, and disruptive innovations and more.

The panel focused on providing a clear digital vision and align business and IT strategies accordingly. Different panelists covered areas that facilitate clear accountability, clarity of roles and decision-making authorities related to digital strategy, policies and standards and areas such as risk management. Importance was also given on how to create a good work culture and ensure the seniors aren’t overpowering the juniors and if the leadership qualities are being instilled properly.

The panel was also opened for a few Q&A questions giving the audience a chance to raise their concerns and having professionals address the issue with ease and comfort.

THE CONTRIBUTION BY FLEXILOANS – ABHISHEK KOTHARI

Abhishek Kothari, co-founder of FlexiLoans attended the event as one of the many panelists representing FlexiLoans and also addressing issues on Digital Age and how to combat them. Having over 11 years of experience in the field of Big Data and Data Analytics Abhishek Kothari threw light upon major aspects of how to analyze data digitally and make inferences of them to draw business decisions. He also addressed issues on leadership and how to ensure that your workplace is an excellent environment to work in and how to use the various talents at the right time and place. One of the main aspects of a venture is setting its goals and targets but an even tougher task is how to ensure all employees are working towards that goal is what our co-founder addressed and gave viable solutions for.

The event had CNBC TV 18 as their media partner and was conducted with a lot of poise and professionalism. The exposure received by FlexiLoans at the event really helped us with some fruitful insight on how to capitalize the Digital Age better. It also gave us a great platform to meet like-minded businesses and individuals and connect with people. After all, nothing is better than the good ol’ traditional networking days!

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Rati felt completely stuck in her situation without a way out when someone recommended hunting for a short term unsecured working capital loan online. There were companies who would lend money without hassle within 2-3 days. This was godsend for Rati, who immediately logged in a query online. Rati found flexiLoans.com who would give her funds on her completing few simple formalities.

Instead of approaching the moneylender, Rati signed up on flexiloans.com, a FinTech startup providing loans. And her loan was processed hassle free. Welcome to the new era of FinTech companies, who are out there to revolutionize lending with the click of a button.

FinTech stands for Financial Technology or businesses that use technology to provide banking and financial solutions. It comprises of both startups and established companies with the main aim of improving service delivery or user experience.

The National Digital Research Centre, Dublin, defines FinTech as

• New applications, processes, products or business models in the financial services industry,
• Composed of one or more complementary financial services and
• Provided as an end-to-end process via the Internet.

It includes different business processes such as:

• Payments (for example, digital wallets)
• Investments (for example, crowdfunding)
• Financing (for example, micro loans)
• Insurance
• Advisory
• Cross Process (for example, data analysis)
• Infrastructure (for example, data security)

In the context of India, various FinTech companies started appearing on the start up landscape to take advantage of the demands to simplify financial processes and provide smarter and more efficient solutions. Digital wallets are now commonplace, and lenders for small token loans are now finding a stronger foothold. Investment marketplaces or Insurance marketplaces have taken to advertising. The whole atmosphere of Banking and Financial Services has undergone a sea change because of such disruptions.

Given that FinTech companies look to disrupt not only businesses but also industries, Zone Startups India is organizing a conclave Fintegrate Zone 2017. The inaugural event aims to highlight changemakers and newsmakers in the FinTech industry, showcase innovations and provide a platform for key players to meet industry bigwigs.

Fintegrate looks to combine the following in a power packed 3 day event:

• Conferences
• Workshops
• A Hackathon
• A CXO roundtable
• Startup Exhibitions
• A Grand Demo Day

The event has 85 speakers from a broad range of fields, from startups, to established companies to address the current scenario and discuss the future. By providing a platform for startups to showcase their Big Idea, it provides a crucial link to connect those who look to disrupt and those who lead reputed companies worldwide.

The conference has slated talks, debates and discussions with a view to broaden the scope of a FinTech participant and bring them in contact with other players working in fields similar to theirs. For those looking to start their own venture, this event is an opportunity to connect with some of the brightest minds in the FinTech space today.

One of the companies demonstrating at the Startup Exhibition is FlexiLoans.com. Started by experienced professionals, FlexiLoans.com aims to bridge the gap between capital looking for a return and small businesses looking for funds. By providing small ticket loans, FlexiLoans.com looks to change the lending industry by including those who are not touched by the lending institutions. FlexiLoans.com offers a simple and transparent approach to funding.

Participants and Industry players can get an opportunity to meet the founders of FlexiLoans.com at Fintegrate 2017. If you haven’t registered for Fintegrate, do it now.

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All this came to a screeching halt when overnight our Government scrapped two big value notes, to make hoarding impossible and illegal transactions traceable. Along with this move came many more challenges for common man and businesses at large. A cash crunch and inability to access sufficient funds made people hold on tight to every penny in hand. As a result demand drastically dropped, trade dealings suffered and businesses came to a standstill.

Digitizing Payments

As adaptable a creature man is, soon we began to find avenues to deal with this sticky situation. Post the note ban, people began to feel the pinch. Long withdrawal queues at banks and scarcity of funds in ATM’s were a common sight. Transactions could be fulfilled merely through swiping debit and credit cards. Businesses now had to invest in digital terminals to stay afloat. The number of point-of-sale machines sold and installed at merchant outlets was unparalleled. But the fact remained that 85% of our rural area population had no access to debit or credit cards and even traditional courier services.

We must acknowledge the role smartphones played in helping us Indians make headway in the rapidly advancing digital world. It has changed the way we communicate and transact. Consumers seamlessly adopted the e-payment options from banking applications to e-wallets. One such mobile payment platform was Unified Payments Interface (UPI). It was released in August 2016, and accounted 300,000 transactions amounting to Rs 90 crore in November 2016. That number grew to an astounding 1.4 million transactions, worth Rs 480 crore, by December 25, 2016. The surge in growth for mobile wallets saw no bounds. In the first two weeks of demonetization, one million new e-wallet users joined the force.

From local kirana stores to vegetable vendors and even mid-size super-markets every business seamlessly turned to digital payment methods during the cash crisis. This further led to ease in transacting, accountability, and transparency. The digital footprint of SMEs emerged, bringing orderliness to chaos in a predominantly unorganized sector.

Digitising Transactions

As SMEs become more proficient in adapting to a cashless market, this will in turn lead them into the ecosystem of an established organized sector. We have noticed the digitization of payment structure, an upgrade in their know-how in latest technology could add immense value. The increased popularity of social media has ensured business websites, social business profiles or even linking to an e-commerce platform for sales has great impact on business transactions. The awareness generated through this online medium has helped small enterprises stretch their presence across the country and sometimes even the globe.

SMEs operate on a limited working capital. Their ability to spread their presence and capture markets with the least amount of capital investment is vital. E-commerce platforms help SMEs spread their wings across the globe and break multiple barriers such as language, physical presence and credibility. Greater the digital presence, larger the market and wider the customer base.

Digitization of processes have helped in creating transparency within enterprises. Off course payments have gone digital, along with it so have invoicing, capturing transaction records and financial accounting processes. Transparency and operational excellence across locations has aided in smooth transactions of business deals. Along with digital transaction records an SME will now be able to capture enormous volumes of data across customer touch-points. Widely and freely accessible online analytic tools can help these small enterprises analyse its customer requirements and preferences and customize products accordingly. Such expert knowledge can help enterprises market themselves effectively and appropriately to the target audience.

Digitizing Finance

Finally, what is crucial for SMEs is easy access to line of credit. Be it, small business loans, working capital loans or even micro credit. Digital lending platforms like FlexiLoans help facilitate working capital finances to SMEs within few days. SMEs with a digital footprint are welcomed to take advantage of this express line of credit to expand their horizons and initiate momentum in their growing stage. Such benefits help SMEs fulfill growing demands without hesitation and in-turn expand and flourish swiftly.

The power of the digital world is a force to be reckoned with if adopted correctly and used wisely. SMEs play a vital role in facilitating the growth of India’s economy. This year (2019) is expected to be a game-changer with the digitization of the Indian consumers, which is key to digitizing the economy. The government is focused on the initiative to drive a digital economy thus giving power to the SMEs.

Latest SME and MSME Business Loan can be Applied from:

SME Loan         MSME Loan

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What an amazing note by Mr. Nilekani. We summarise what will drive disruption:

A. E-Commerce and Mobile – An extremely potent combination for India with high adaption of E-commerce and Low cost smartphone availability

B. Move to Cashless Economy – Today only 5% of personal consumption is cashless but massive change happening. Five key steps here : 1) Electronic clearing is at par with Hard clearing for the first time in India 2) IMPS- Instantaneous credit platform 24*7 (In 3 years, Volume increased on this platform is 1/3rd of total E- remittances in India). IMPS will overtake debit/ credit cards in India in the next few yrs 3) E- commerce and Digital payments expected to go 3-4 X times. A large COD (today at 80%) will shift to Digital payments 4) 3-4 Bn recharges happening per month in India and only <5% happening digitally today. Will explode eventually. 5) LPG subsidy itself is over a billion transactions in India per annum. Expanding the DBT scheme will result into over 4 bn transaction happening online.

C. Aadhar based authentications – Re-imagine the future, not a western theme. Over 900 mn Aadhar registrations. An IRIS camera takes less than $5 to add to a smart phone and will change the way authentication is done in India. In 6-9 months, 2 factor single click authentication will be accessible to everyone.

D. Jan- Dhan Accounts – Over 1 bn people now in India with Bank accounts, mobile phones and Aadhar registrations will change the digital banking paradigm.

E. Wallets – UPI and inter-operability amongst wallets will bring ATMs in everyone’s phone.

F. E-sign – Explosion of innovation due to removal to unnecessary documentation hassles moving out.

We will move from Data poor to Data rich soon – we will have a Tsunami of data and information. The Bank will be in the Mobile Phone and Banking will get disrupted. Lending will change to data and algorithms and A BILLION PEOPLE ARE GOING TO BENEFIT. Lets the games begin………

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