The hype around the annual budget is always high, with newspapers and TV channels streaming diverse opinions from experts. Like every year, the budget for 2018-19 was eagerly looked forward to. The salaried class and freelancing professionals hoped for a reduction in tax rates or a raising of the taxable income thresholds; the trading community expected a more streamlined GST structure and changes that could help in managing business finances more conveniently; the institutional lenders needed a sustainable digital infrastructure for easier processing of their loans.
While the Annual Budget 2018 did not completely address this list of concerns and expectations, there were some announcements that aimed to help the businesses and the general public for a sustainable and progressive financial year.
The government has recognised the potential of small and medium enterprises in this country and is giving them every possible incentive to grow. Today, a business loan in India can come not only from the public and private sector banks but also the new age non-banking finance companies (NBFCs) that have emerged known as FinTech lenders.
FinTech is an acronym for Financial Technology, and these FinTech organisations essentially use software applications and other forms of digital technology to enable their financial services. They are known for granting quick loans to small businesses and have flexible repayment structures.
The fact that they disburse a business loan based on the digitally signed applications and soft copies of supporting documents makes it easy for borrowers to get their funds in less than a week and move ahead with their growth plans.
In his annual budget speech on 1st February 2018, the Union Finance Minister Mr. Arun Jaitley said that micro, small and medium enterprises (MSME) require smoother access to working capital and that FinTech companies have a significant role to play in this regard. He stated that the government will create a team of experts headed by the Finance Ministry to look into the specific ways that will help the FinTech companies to grow.
Another positive sign for small businesses was that the corporate tax rate of 25% that was earlier levied on corporations with a turnover of Rs 50 crore will now be levied on companies that have a turnover of up to Rs 250 crore. This is a big relief for new enterprises that have just started their operations and are planning to take a business loan in India to propel their growth. This expansive coverage will also give a boost to the economy in general because 99% of the corporate tax filers are MSMEs, and most of them will now be exempt from such steep rates.
Reeling under the impact of the GST rates announced in July 2017, the small businesses were finding it difficult to manage their finances, but the GST changes announced at the 23rd meeting of the council in November 2017 brought relief for many. Coupled with this, the declarations made in the Budget 2018 have again incentivised the business community to borrow for their venture’s development.
The FinTech companies also have hopes to expand their services and are successfully competing with banks and other lenders to offer the best credit products to a diverse range of SMEs. The advantages of getting business finance from a FinTech company in India are already being discussed at large in online forums and internal business conferences.
It is the digital approach of applying for loans and getting a decision in minutes that fits well into the demanding schedules of business owners. Startups have small teams and some of the executives may be handling multiple roles. They are hard-pressed for time and find it difficult to meet the bank staff in their own business hours. By sending a quick application to a FinTech company, they not only get to know the status of their application in minutes but also receive the requested funds to their business bank account in 2-3 days.
Another benefit of a FinTech business loan in India is its unsecured nature. This implies that there is no need to hypothecate any collateral while applying for such a loan. While issuing finance, banks and traditional lenders do ask for security, which is usually an immovable property like business premises. The FinTech lending model does not have any clause for the pledging of such assets. You get your loan purely on the basis of your business’s creditworthiness.
In addition to offering unsecured loans, FinTech companies do not even add multiple charges to their loan costs. You can check the segregation of your principal and interest payment using the EMI business loan calculators published on their websites. Apart from the interest, the processing fee is the only other charge to be paid for the loan. There is no loan insurance premium and no other hidden fee. Also, the processing charge is not more than 2% of the loan amount.
While repaying your loan, you can get your EMIs changed as per your payment capacity in any stage of a particular business cycle. If at all you decide to pay off your loan earlier than the predetermined tenure, you pay only up to 2% of the amount as a pre-payment penalty. This is half of the fraction that most private and public-sector banks charge.
The financial landscape of India has been changing dynamically since the last five years. The country has seen many ups and downs through the phases of demonetisation, use of mobile wallets, UPI, Aadhar linkage of bank accounts and PAN cards, GST and the subsequent changes in GST. At the same time, the impetus to startups under the Make in India campaign was understood and appreciated by many. Budget 2018 has also brought some good news for small businesses by giving them corporate tax relief.
The conditions for a tailored loan that can fuel business growth and opens new doors for revenue are active now. There are plenty of sources for finance and approaching them is not difficult. It remains to be seen who can proactively make the most of these changes.