How to gain access to credit to run your small business seamlessly?

Table of Contents

The Problem

In an IDEAL world, a young businessman/entrepreneur needs a good idea to work and dedicated to creating a thriving business. But in the REAL world, many factors come into account.  

These factors, when do not taken seriously, can impact on the growth of the business and even cause a shut-down in the future. And not having financial stability is one of the common issues that most new businesses face, especially those who fall under the category of MSMEs. Running a business without having any financial constraints is easier said than done. The ongoing pandemic has already crippled businesses, and financial scarcity adds more complications in profitably running the businesses.   

Almost all businesses face a financial shortage while planning to expand` and explore better opportunities. But most of the time, small businesses require constant cash flow for their supply chain and working capital needs.   

But the primary issue is to get “Easy access to lending and working capital for small businesses in India.” Almost invisible support from the banks and the insufficiencies of business credit is the stories of every surviving MSMEs.   

Reason Behind This Problem

The traditional period for MSMEs to get paid is 30, 60, or 90 days in some cases. This TIME Period can be distinguished as the REAL Villain of the story, but wrong or no financial planning also shares a big chunk of it.   

During this period, the business owner needs to pay the vendors for the resources, sort the employees’ salaries, get more resources to cater to other clients, and take care of other spending. With no financial backing and the buyer not ready to pay for 30, 60, or 90 days, it becomes difficult for MSMEs to survive. In such scenarios, Factoring Finance India emerges as the savior among the MSMEs.   

What's the Solution?

The small business owners in India are turning to alternative lenders who can solve their financing hurdle and offer them a chance to scale to a new height. Solutions like Factoring Finance, which is the selling of receivables(invoices) to registered factoring companies in India to keep the cash-flow steady, is the best solution to this problem.   

Why Factoring Services in India and Not Business Loans from Banks?

Traditional bank loans for businesses are always a controversial topic. Because taking long-term loans for short-term needs can put financial constraints on your business in the future. Moreover, banks also hesitate to offer business loans to small businesses, especially those that do not have substantial collateral. There are a few reasons behind it: not having constant cash flow is the biggest. Let us understand why banks don’t offer many loans to small businesses/MSMEs and how factoring finance is the best alternate solution for business financing

1. Time in Business and Limited Collateral

For small businesses, securing a bank loan may seem like one of the best ways to kick-start their business because it can help them get through the first year without any issues. But with no proof for future projections (traditional loans require two full years of tax returns to prove consistent gross and net profits), banks tend to step back. Additionally, with limited collateral or no security, banks see no authority. They require any heavy machinery or real estate as the property on your name just to consider your business for loans.    

“On the other hand, Factoring is selling your unpaid invoices to one of the factoring companies in India. No collateral is required to get 80-90% of your invoices and keep your business running efficiently without any financial hassle.”a

2. Weak Cash Flow

Banks are very concerned about the cash flow in the ecosystem of small businesses. Weak cash flow raises doubts in the minds of bankers as they question the ability of small businesses to pay the monthly EMIs. Unfortunately, many startups and small companies struggle to keep enough money in their bank, especially in the initial years. It usually happens because they need to pay 3rd party suppliers upfront before getting paid for services/products.    

“Factoring Finance is created so a business can have constant cash flow. It eliminates the need to take long-term bank loans and pay high-interest EMIs by keeping your assets or heavy machinery as collateral.” 

3. Bad Credit

Bad credit history will not land you anywhere. And unfavorably, it is the first thing lenders will review when you apply for business credit—properly managing your personal and business finances and stretching to every extent to avoid mixing your personal and business finances. A poor credit score can easily make lenders fly away as it demonstrates the individual’s credibility of not making well-informed decisions and inability to meet the financial obligations included in the loan agreement.  

“Instead of looking at your past mistakes, Factoring focuses on your future and lends you money based on the invoices for which you have already worked. Factoring finance keeps you away from all the bad debts with the benefits like gaining predictably higher liquidity and greater portion of equity, grant longer payments terms to your customers, and most importantly enjoy security against bad debts losses.”   

Fun Fact: The latest data from the Reserve Bank of India on Financial Express, the NBFCs (Non-Financial Banking Services) had disbursed Rs 20,800 crore to fresh borrowers and Rs 7,700 to repeat borrowers now.     

Why does Factoring Finance Matter in Today's World?

Access to traditional business loans is hectic, time-consuming, and requires collateral. On the other hand, Factoring Finance services India elegantly fills your cash flow gaps usually caused by slow customer payments. Factoring is an entirely collateral-free solution that sustains the operations and grows the business. So, if supply chain management and working capital are one of your concerns, then factoring for an RBI registered NBFC-Factor can speed up your cash flow.    

How Can Factoring Finance Be Used to Improve Cash Flow for Businesses?

  • Making payroll in even slower times   
  • Staffing and hiring new employees  
  • Collecting funds faster for unpaid invoices  
  • Buying more materials for projects  
  • Getting more inventory to increase margin  
  • Buy new equipment  

Smart solutions like Factoring have emerged as the best solution to get finance for MSMEs and small businesses in India. With already a huge success in some other significant countries, factoring services in India can easily streamline the disrupted MSME industry in India by tackling their supply chain and financial needs.   

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