Tag: Working capital finance

An entrepreneurial wave has engulfed the day. At present, the number of new (recognized) startups is well over 127,000, a terrific rise from 726 (in 2016-17)—one major factor being the rise of fintech players in recent years. Thanks to them, all businesses, especially those that start from scratch, can now fuel their startups with easy money or “working capital loans”, often with no collateral.

The fundamentals of business are quite simple & universal:

Money makes money: Startups earn more when they invest more, be it in inventory, resources, marketing, etc.  However, money is a complex entity, because people believe that a business that has to take out loans from the market isn’t doing well, which in reality is not correct.

We say a smart working capital loan can build a roadmap to IPO listings! And you’ll agree to that as you read along.

What is Working Capital Loan?

We often dread a loan for its never-ending cycle of EMIs. But unlike a home loan or a car loan, a “working capital loan” is much easier to avail and vital for a business

Working capital is a continuous want; one needs a consistent cash flow to pay the people who work for you (“payroll”), to pay the “rent” for the land used, for the machineries, and to restock components/ finished products for future needs (“inventory”).

Company revenue may fluctuate monthly, seasonally or quarterly, but cash needs don’t. In short, working capital is the money that keeps your startup going on a day-to-day basis. And a working capital loan makes sure you always have enough working capital in hand.

Types of Working Capital Loan available for SMEs & Entrepreneurs:

Working capital loans are basically two types: Secured loans (collateral required) and Unsecured loans (without collateral).

Some popular working capital loans are:

• Bank Overdraft/ Line of credit: This loan is gained through a pre-approved withdrawal limit on your current bank account.
• Merchant cash advance/Factoring: This is the loan availed against future credit transactions instead of the current sales receipt; here, the fees can be high, and it might affect your future credit score too.
• Short-term loans/Installment loans: a secured loan type, this is one of the better-known working capital finance options used by Indian SMEs. It is the money lent against a fixed interest rate for one year or less.
• Business Credit cards: Corporate cards like the Credit Card are unlike traditional loans, are used to finance unforeseen capital needs and can be your all-in-one virtual card for all business transactions.
• Equity Funding: Many early startups use personal resources or investors (family and friends) against the startup’s part (equity share).
• Trade creditor: This is the loan availed on placing bulk orders. Usually, suppliers lend such loans to SMEs.

Types of business loans

Why & When do you need working capital finance?

Consider the following scenario: Prasad, a 32-year-old farmer, decides to start an agritech startup.

He has the expertise, the technology, and the human people. He decides to bet on his idea by selling some of his assets and is making decent revenue. People like his products, but product sales is limited.

There is also a backlog of non-payments from clients, which will take time to recover. In technical terms, his company’s liquidity (or cash in hand) is diminishing without affecting its market value.

His key concerns are:

• How does he pay his people for the following month?
• Should he make further purchases to stock up his inventory?
• Should he invest in marketing?
• Has he failed as an entrepreneur?

If you are living this dilemma, don’t fret! You are not alone. In India, millions of startup founders & merchants, from the smallest Kirana store to the largest supply chain owners, face this problem (or a part of it).

Many would agree that Prasad can perform much better if he gets monetary aid. And that is exactly where top fintech companies in India 2020, like the EnKash, enter the scene.

Capital finance will help startups with the following:

• Fulfilling cash needs for rent, payroll, inventory, and other daily operations is vital for sustenance.
• Improve the company’s growth curve with marketing and achieve increased retail sales.
• Improve the company’s liquidity status until recovery from unpaid invoices.
• Invest more in future plans of expansion

Check your eligibility before approaching for a loan!

Loan eligibility varies from lender to lender but here are some general eligibility criteria that are taken into consideration:

Business Age: It is necessary for a business to be operational for at least a year for it to be eligible for a loan.

Credit Score: Most lenders require you to have a good credit score (typically above 700) as it shows that you can handle debt easily and can make timely repayments. 

Annual Revenue: Another important factor is yearly revenue, having a good yearly revenue is important as it tells a lender about your repayment capacity

Business Plan: A solid business plan showcasing your future projections and growth strategies can strengthen your loan application.

Documents Required for Working Capital Loans

The specific documents required will vary depending on the lender, but common requirements include:

• Filled out application form with photographs
• Aadhar Card, PAN Card, Driving license, Voter ID Card, Passport, and Utility bills of the applicant
• Business registration documents like certificate of registration/incorporation
• 1 Year Bank statement
• If the lender requires, he can ask for more documents

5 Quick Ways To Get Financial Help From Lenders In India

Financial aid, in the face of an emergency, can be quickly availed through:

• Lending from friends and relatives for quick cash.
• Applying for quick, collateral-free loans on fintech platforms like EnKash (where the loans can be approved within 3 business days and zero collateral, all through a DIY interface).
• Mortgaging of land/ property and eligible assets against withdrawn amount.
• Applying under Pradhan Mantri Rozgar Yojana (PMRY) and other eligible government schemes (under PMRY, eligible candidates can avail up to 5 lakh of loan for business setup).
• Availing gold loans against mortgaged jewelry and valuables.

Benefits of Working Capital Loans

Financial Stability and Flexibility: Having a working capital loan can benefit a business in numerous ways, it can give a business the ability to manage cash flow for operational expenses like salary disbursement, rental payment, utility payments, and investment in inventory/stocks. Moreover, it also paves the way for a business to continue smooth operations even when the market is down.

Enhanced Business Growth: With access to working capital, businesses can invest in strategic initiatives to drive growth. Whether it’s expanding marketing efforts, launching new products or services, or entering new markets, working capital loans empower entrepreneurs to take calculated risks and pursue avenues that can lead to increased revenue and market share. This ability to invest in growth initiatives sets the stage for long-term success and competitiveness.

Improved Cash Flow Management: Managing cash flow is crucial for sustaining operations and meeting financial obligations. Working capital loans provide a buffer against cash flow challenges caused by delayed payments from customers or unexpected expenses. By bridging gaps in cash flow, these loans prevent disruptions in business operations and allow for smoother financial management, reducing the risk of defaulting on payments or missing opportunities due to cash shortages.

Operational Efficiency and Agility: Timely access to working capital enables businesses to operate more efficiently and respond swiftly to market dynamics. Whether it’s taking advantage of supplier discounts by making bulk purchases, securing timely payments to suppliers and vendors, or optimizing inventory levels, working capital loans empower businesses to streamline operations and enhance overall efficiency. This agility in operations is especially crucial in competitive industries where quick decision-making and execution can make a significant difference.

Crisis Resilience and Risk Mitigation: In times of crisis or economic uncertainty, having adequate working capital becomes even more critical. Working capital loans provide a safety net that allows businesses to navigate through challenging periods, such as economic downturns, market disruptions, or unexpected emergencies. By having sufficient liquidity, businesses can withstand temporary setbacks, sustain operations, and position themselves for recovery and future growth.

Strategic Investment Opportunities: Beyond day-to-day operational needs, working capital loans enable businesses to seize strategic investment opportunities that can drive long-term value. Whether it’s acquiring key assets, investing in technology upgrades, or pursuing mergers and acquisitions, access to working capital empowers businesses to make strategic decisions that contribute to their competitiveness and market position.

Credit Building and Financial Health: Responsible utilization of working capital loans can contribute to building a positive credit history and improving the financial health of businesses. By demonstrating the ability to manage debt and meet financial obligations, businesses can enhance their creditworthiness, access larger loan amounts at favorable terms in the future, and strengthen their overall financial standing in the eyes of lenders and investors.

To know more, visit EnKash. You can also click below on Signup Now and we will reach out to you soon.

Businesses are incorporating Purchase cards into their business models to increase their working capital efficiency. Due to their boosted efficiency and vast variety of benefits, Purchase Cards, also known as P-Cards or Procurement Cards, have become the most widely used tool for both – payment and procurement.

Purchase cards are a great way to replace paper-based invoices and manual processes. This helps businesses to operate more efficiently by cutting operating costs, automating expense reconciliation processes, and providing excellent insight into working capital in financial management.

If you have gone through the above stanza carefully, then you must have noticed a term, and your mind must be pushing to know what is working capital management? Well, it is a process to handle the business assets and liability in an effective way to enhance the business. Most of the time, it has been observed that improper working capital efficiency management leads to huge debt, and as a result, a company faces a major financial problem.

Objectives of Working Capital Management

Now, you are well versed with working capital management, and it’s time to have a look at its objectives. This business strategy comprises many elements in its basket, and one such is the purchase cards.

A business can have a couple of compelling reasons when it comes to switching to purchase cards. Depending upon what they’re aiming to accomplish, one reason could be to improvise their P2P (Procure to Pay) process and make it more flawless whilst bettering their procurement. Another reason to switch to purchase cards could be to improve working capital efficiency. However, it is not uncommon for businesses to want both!

Apart from simplifying the payment procedure, purchase cards also help decipher the spend pattern and devise strategies accordingly. The amount of data that can be collected is impressive and very helpful since a large chunk of vendor information is accessible through each transaction and thus act as a smart digital B2B payments mode.

Another hidden treasure is a reduced transaction fee when it comes to working capital benefits. Due to different stages being involved, the traditional P2P transaction is a slow, expensive, and time-consuming process that impacts the business. After knowing about the objective of working capital management, you can step ahead with its elements to boost your business.

What Is The Importance Of Working Capital Management?

With time, most of the things in the business changed just because of smooth running and ultimate output. In the same line, working capital management act and in modern-day, it is very much significant.

Purchase cards have recently gained popularity due to the ease of implementation. Each business has its own individual reason to adapt to cards and with different demands come different expectations, be it to stay ahead in current, ever changing markets or for the ease of processing and handling increased volumes. Owing to all these key features, payment efficiency is at an all-time high.

Countries advancing (such as India and Australia) in electronic payments are recent hotspots for purchase cards being utilized for digital B2B payments. Countries such as those in Europe that have already found their comfort in electronic transactions are competing to increase their working capital.

In terms of increasing working capital, paying with credit is a luxury that helps businesses stay afloat while reducing the risk substantially and ensuring the suppliers get paid in a timely manner. It acts as working capital loans that give businesses more freedom to invest back into the business itself while successfully eliminating the constant worry of settling invoices. Another outstanding feature is that suppliers and clients can mutually benefit from each other and assist each other in expanding.

Purchase Cards Act As A Catalyst In Working Capital Efficiencies

Managing the cash flow in a company demands quite a juggling act! One needs to keep a perfect balance between finding credit, managing suppliers, monitoring your billing cycles and the flow of revenue.

Purchase cards offer you flexibility in billing cycles that could vary anywhere from 7 days to 50 days which enables you to collect the revenue as soon as you can and holding on to payments as long as possible. This solves your cash flow problem to a large extent.

Purchase cards provide flexibility to make desired purchases without forfeiting control. However, limitations can be implemented per transaction as per your need. You can also decide where or which supplier can be paid using the card.

This is just the beginning for purchase cards. The future holds extended benefits that will make this product an absolute essential for businesses. Moreover, this card also acts as an emergency credit line guarantee scheme. Thus, you don’t have to worry much more about the financial crunch in the business.

EnKash works closely in issuance of Purchase Cards across business segments and company sizes. It also provides the necessary payable management platform for usage of such cards. For more information, visit EnKash.

And if you want to see the magic of the Purchase Card and avail awesome rewards and credits, see the short video!

If you own a business, you might have come across a need to raise working capital finance. While the traditional way of going about it is to go to banks and other such financial institutions, however in today’s world, it is not the only recourse!

With a digital revolution ongoing in the financial world, fintech companies have cropped up in recent years to help in securing working capital finance.

Ways to Raise Working Capital Finance for Business

These fintech organizations are a boon for small businesses since their processes are less stringent and need less documentation. Whereas most small businesses avoid going to banks for fear of being denied a loan, fintech firms may provide the same service.

One another mode of raising working capital finance is marketplace lending. Also commonly known as peer-to-peer lending, this mode of raising funds is fast becoming popular among micro-enterprises.

In recent years, it has come to light that the majority of small businesses struggle to raise working capital finance. This could be due to various reasons, such as a lack of foresight and planning for high-risk assessment by credit companies. Therefore, there is a big opportunity for moneylenders to jump in. This not only aids in the survival of a firm but also adds to the services and jobs it provides for the country’s growth.

It is also a win-win for marketplace lenders because there is a huge scope to enjoy the potential rewards of such a partnership.

While banks and financial firms are more stable, the benefits offered by banks do not reach all. Most of the benefits of working capital finance from banks go to businesses that have a good credit score. For small businesses that are still dependent on cash payments without maintaining proper ledgers, banks are a no-go. This is where P2P or marketplace lending shines.

This type of lending is classified as NBFC and is rapidly being adopted for raising working capital finance. It takes into account the idle wealth of individuals and turns them into working capital finance required by businesses.

It also eliminates the limitations brought to the fore by geography. When businesses are separated by miles of land, going to banks is not always a possibility. Some banks will not have a physical branch at said location. Moreover, covering long distances to secure working capital finance is not a smart choice. This can be bypassed with marketplace lending.

P2P lending does not care for physical borders or state lines. With the power of the internet and Pan India operations, marketplace lending transactions can happen from anywhere, anytime. It doesn’t matter where the business is located, working capital finance can be made available from the lender who lives in a different part of the country.

Marketplace lending also addresses the disparity between different industry sector needs. While banks can be more generous towards industries that are doing well, they might not be willing to take a risk on sectors that have less than stellar records or profits in the future. Also, a repeat customer for a bank is a reliable customer but a new business in the same sector may not be the same. This is where marketplace lending comes into even the field. By bringing in individuals from different places and with different objectives, marketplace lending ensures that no business is left behind.

If you’re a startup, the working capital loan for startups and VC working capital finance is probably what you need. But if you’re a micro-enterprise, marketplace lending of working capital finance could be one way to secure funds for your business purposes such as hiring new personnel, buying new equipment, etc.

Today, as more and more avenues and opportunities are being opened and people are moving into the digital age, the scope for businesses and entrepreneurs will only grow upwards. The Indian marketplace lending space makes use of the idle wealth of individuals while helping them build a portfolio of assets.

Also Read: Electronic payment for businesses

Current Market Size And Working Capital Finance Of Marketplace Lending

While online marketplace lending is currently a small component of the loan business, it is a rapidly developing and dynamic sector. The U.S. market is now dominated by prime and near-prime consumer unsecured working capital finance, followed by small company loans and student loans.

Market experts anticipate a $1.0 trillion potential market for online marketplace lenders and working capital finance origination volumes of $90.0 billion by 2020.

Online marketplace lenders are now beginning to offer mortgage and vehicle loans, albeit this is still a small portion of the total industry. Companies are now marketing directly to customers willing to refinance corporate cards, small companies neglected by financial institutions, students looking to refinance current student loans, and individuals purchasing vehicles using non-bank financing.

To calculate a business’s working capital, all you have to do is add account receivable with inventory and subtract account payable as shown below.

This industry has grown rapidly due to strong interest from institutional investors, venture capital, financial institutions, and hedge funds. From 2014 to 2015, venture capital-backed online marketplace lenders raised $2.7 billion in 36 agreements in the United States. In 2014, investor enthusiasm prompted the marketplace lending industry’s first initial public offerings (IPOs), with Lending Club and OnDeck generating $1.0 billion and $230.0 million, respectively.

Furthermore, the entry of institutional investors has fueled the development of an ecosystem of online marketplace lending-focused information services, risk analytics, and trading technology businesses.

On the debt side, online marketplace lending full of working capital finance has emerged as a compelling investment for investors seeking diversity and high yield.

Increased investor demand boosted the market for securitization of whole loans offered by online marketplace lenders, with the first unrated securitization transaction pricing in 2013 and the first rated securitization transaction pricing in 2014.

The Bottom Line

The new business models and underwriting technologies that are driving the expansion of online marketplace lending have emerged at a period of extremely low interest rates, reducing unemployment, generally favorable credit conditions, and operating cash flow ratio. It will be crucial to track how online marketplace lenders test and change models when credit conditions deteriorate.

To know more, visit: EnKash. You can also click below on Signup Now and we will reach out to you soon.