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Ankit Shrivastava
over 1 year Chennai, Tamil Nadu, India Story
Repay a Business Loan in the Off Season and Remain Financially Stable

Small and Medium Enterprises (SME) are the key pillars of the Indian economy and their robust health and business growth are of utmost importance to the Indian government. Through subtle changes in economic policy and by encouraging the spirit of entrepreneurship, the Government wants more and more people to set up small businesses and encourages the existing businesses to think beyond their traditional markets and accelerate their growth.

A key financial tool that aids business growth is the timely availability of an adequate collateral free business loan. While young entrepreneurs might have the brains to innovate and look beyond traditional economic opportunities through the judicious use of technology, they might still need to apply for a loan for business without security to execute those strategies.

While scouting around for sources of an unsecured business loan in India, their first instinct would drive them to banks and other traditional non-banking finance companies (NBFC). However, such financial institutions still follow archaic means for finding out loan eligibility and often demand collateral against loans. Also, they follow an inflexible approach towards deciding the amount of loan for business without security (which is often benchmarked as a percentage of the collateral) and the repayment tenure. Most small businesses do not have adequate collateral to offer and would rather settle for a collateral free business loan.

The traditional money market lenders are another source of unsecured business loan in India but such lenders charge an exorbitant rate of interest that varies between 2% and 3% per month. Moreover, their working style is extremely unprofessional and it is an uphill task for any young business to deal with them. Another way of getting capital infusion is through venture capitalists. They are the people who look at opportunities for owning a stake in new businesses where they feel the business idea sounds promising enough. However, they would want a strategic control over decision-making, thus diluting the control of original promoters.

The collateral free business loan market needs a fresh approach and this is what new-age Fintech companies bring to the table. They understand the needs of small businesses and have designed their offerings for a collateral free business loan in tune with those needs. For instance, a business could be waiting for payments from a large customer but needs to pay its suppliers for immediate raw material purchases. In such a scenario, it can’t wait for payments to be credited (which typically follow a 90-day cycle). The best option for them would be to go for a loan for business without security or even supply chain finance.

Similarly, an enterprise might need a loan for business without security during peak season to drive business growth. For such a business, it makes sense to utilise its entire funds to sell more and repay those funds during the lean season when lesser working capital is needed, and the payments for sales made during peak season start getting credited.

Prepare a list of your business needs that need capital infusion

It is very difficult to manage cash flow for a small business. Their cash reserves are limited and payments are often delayed. Most businesses have to wait for a period of 90 days before they receive payments from large customers. However, they do not receive similarly long credit periods from their suppliers. Add to this expenses on employee salaries, money required to purchase new equipment or payments for maintenance of existing equipment and other recurring day-to-day expenses, and the entire cash flow management goes for a toss.

Some businesses are seasonal in nature and find themselves with a cash surplus only during the peak season while their cash flow problems become quite acute during the off season. Therefore, every small business needs to prepare an exhaustive list of expense priorities and the accounts receivables for at least the next one year. They would then be able to efficiently gauge their expected cash flow movement for that period. After gaining the right insights, it would make sense for a business to borrow a collateral free business loan for activities that would help it grow.

For instance, if a business is getting more orders during the peak season, it should utilise business loans online to purchase raw material, manufacturing equipment, hire more employees and perhaps more space to run its operations. Parting with funds during this period or repaying business loans online might lead to a decrease in working capital available for funding business growth. The repayment part could be taken care of during the lean season when lesser working capital is required and the revenue from sales made during peak season is being received.

Take business loans online from lenders that understand your business

Banks and other traditional lenders will insist on fixed or monthly repayment schedules. Also, they levy a pre-closure penalty should you decide to repay the loan in one instalment. However, the new-age Fintech lenders understand the cyclical nature of small businesses and would offer an unsecured business loan in India so that you remain capital adequate during your peak business season. This is especially true of businesses that have a sound financial past and are confident of doing well in the near future. Such businesses should use their working capital for maximum growth during the peak season.

When the season gets over and there’s a lull in demand, the surplus funds and revenues from previous sales could be used to repay your loan for business without security. Also, Fintech lenders offer a collateral free business loan based on an organisation’s past receivables and its credit worthiness. So, your loan amount is not tied to the value of the collateral as is the case with banks. The Fintech lending process is completely transparent and no hidden charges are levied. The application process is completely online and big data analytics are used to decide applications for business loans online. If approved, a loan for business without security is credited into the account within a few working days.

Look for a loan product that suits your business need

The extensive use of technology allows Fintech companies to offer a collateral free business loan that suits the need of different businesses. For instance, small businesses that require cash flow due to delay in accounts receivables from large corporates can go for Supply Chain Finance. Here, those unpaid invoices could be used as collateral to take a short-term loan.

Likewise, a merchant who receives sales payments through card payment machines could get an advance amount that could be 200% of the total amount of monthly receivables. This amount could be repaid through the deduction of a fixed percentage from card payment receivables in subsequent months. So, he pays more during a month if his earnings are high and conversely, he pays less during leaner months.

Those who want quick working capital to tide over immediate cash flow constraints can always go for working capital loans of a short duration and repay them when they receive adequate cash from their customers. Such a strategy helps avert any financial crisis and the business remains steady on the path to growth.

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