Five Financing Options Available for Small Businesses

In the digital age, many young entrepreneurs dream of setting up their own franchises. However, some may falter at a later stage due to lack of business funding, which impacts their ability to latch on to future business opportunities.

Business funding is a key challenge for most small businesses, as banks are wary of approving loans for anything that carry even a remote possibility of adding to their non-performing assets (NPA). The business loan India model for SMEs continues to be conventional, and entrepreneurs who are desirous of upscaling their business or of venturing into a start-up may find the going tough.

Thankfully, the advancement in technology over the last decade has led to the rise of new age FinTech companies. Such lenders understand the needs of people and small businesses, they design their loan products to promote the demand of various types of financing option like car finance, bike finance, business finance in India. Due to the use of extensive technology, their loan approval process is much faster as compared to banks and other traditional non-banking finance companies (NBFC).

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Once approved, the business-funding amount is disbursed into the bank account within three working days. The process to approve loan for business in India is entirely transparent. With a variety of business funding products to choose from, SMEs get the much-needed flexibility to manage the loan for business in India without putting too much stress on their business finances.

Let us now review the top five business funding options available for small businesses.

1. Short-Term Finance: As the most popular loan for business in India product, short-term finance covers the working capital need of an SME for a duration that typically varies from 1-3 years. This business funding option is appropriate for businesses that have been in operation for more than two years and have sound business financials. This loan for business in India can be applied through the website or mobile app of a FinTech company. All key financial documents required for supporting the business funding application, such as tax returns, VAT returns, bank statements, previous loan statements, KYC documents and business receivables, are required to be uploaded in digital format. FinTech companies run Big Data analytics and complex algorithms to process an application for loan for business in India. Once approved, the amount is credited into the bank account of a small business within three working days.

1. Supply Chain Finance: A small business typically supplies goods and services to large companies. However, there is a gap in receiving invoice payments from large customers, which in India is generally around 90 days. Supply chain finance or invoice financing is a business-funding product designed for such SMEs. The pending invoices can be used to raise business funding to fill the gap between order delivery and receipt of payment from a customer. This loan for business in India can be used to buy raw material to fulfil other business orders, to pay suppliers, employees, etc. and thus the negative impact of delayed payment is avoided. Supply chain finance is far better than invoice discounting, where pending invoices can be sold at a discount to generate business funding. With supply chain finance, you remain in control of your outstanding invoices. Moreover, the day you receive payment from your customer, the entire loan amount can be repaid in one go.
2. Merchant Cash Advance: This loan for business in India product is designed for retail merchants that typically receive their payments through PoS terminals, such as hotels, restaurants and apparel showrooms. Such merchants can take a lump sum amount upfront and repay it through the deduction of a specific percentage of their card receivables each month. The repayment of this kind of loan for business in India is not a fixed amount, but instead a specific percentage of the payments they receive from their banks as part of card receivables. You can take up to 200% of the monthly card receivables as merchant cash advance from the lender. The total loan amount, which includes lender charges, are deducted as a fixed percentage by the bank from the card settlements each month.
3. Online Seller Finance: This type of business funding is meant for merchants that sell aggressively through popular e-commerce platforms such as Flipkart and Amazon. The FinTech companies look at the transaction history of such merchants online before approving the collateral-free loan for business in India. Such business funding could be utilised by the merchant to expand their business operations and to shore up stock before the commencement of a festival sale.
4. Line of Credit or Pay Later Business Loan India: A small business could have several orders in the pipeline, but it could be constrained from taking them up due to lack of business funding to pay its suppliers. To avoid such a scenario, FinTech companies offer a pre-defined credit facility to these businesses so that they can pay their suppliers and take up new orders. Such small businesses could get discounts from suppliers on bulk purchases, which offset the interests incurred on the credit facility.

FinTech companies understand the business challenges faced by SMEs, and believe that loan for business in India given to SMEs has to be designed differently from those for large enterprises. They also understand that SMEs need business funding at a short notice, and therefore utilise cutting-edge technology to speed up loan processing.

With a variety of business funding options available, small businesses can get the right loan for business in India at the most competitive rates and in the most transparent manner possible, so that they can focus more on business growth rather than on pursuing lending institutions.

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Ankit Shrivastva is a blogger with an experience 8 years and worked for top organisation of India.