ZoukLoans

Collateral-free working capital and customised secured loans for businesses.

[zoukloans]

When should you go for debt consolidation?

Debt consolidation is the clubbing together of outstanding loans or debts that a borrower has into a single number which will then be paid back to the consolidating bank or lender. You can consolidate different types of loans –personal, car, education, business, to name a few.

Or, if you have unpaid balance on your credit card(s) which is accumulating and you find it difficult to make repayments, opting for debt consolidation is a good idea. This allows the borrower to tie up all of their debt into a new loan which will pay off all small loans/unpaid amounts on their credit cards.

The biggest advantage of debt consolidation is that it makes managing your borrowings easier. It may become hard to keep track of various types of loans that you have taken with their EMIs, payment days and the amounts. Things get further complicated if you hold several bank accounts with different repayment tenures, different EMIs, and different dates.

This puts an extra burden on the borrower to manage and keep track of their various borrowings. It may also become difficult to track various credit card amounts and due dates. With debt consolidation, the borrower will only have one loan to pay on one day in a month.

Debt consolidation also reduces the interest rates that you pay. Credit cards are one of the most expensive ways of borrowing with some of the highest interest rates. If you consolidate your credit card debt, you can expect a big reduction on the interest rate charged on your card, leading to additional savings.

In the case of loans, the amount that you pay back as EMI will be lower than what you previously paid if you opt for debt consolidation. One important thing to be aware of is that if you can provide collateral support when going for debt consolidation, you will get a much lower interest rate on your new loan. This loan is called a secured debt consolidation. If you do not have any collateral to put forward or if your loan is a collection of unsecured debt, the interest rate may be relatively higher.

When you are looking for debt consolidation, you should understand the various provisions like interest rates, tenures, collateral requirements, etc before choosing your lender. This will allow you to pick a consolidation product best suited to your needs and provide benefits of savings. You can also opt for fixed or revolving rates on your consolidated loan. Be sure to check if the interest you pay on your loan does not accumulate into a large repayment amount because the consolidation allows for an increase in repayment tenure. Debt consolidation is a great way to keep your various loans and debt in check and to deal with your borrowing effectively.

ZoukLoans is India’s largest online lending marketplace with 86+ partner banks and NBFCs. To apply for debt consolidation with ZoukLoans, click HERE, or visit us at www.zoukloans.com 

[zoukloans]

Financing Mistakes Entrepreneurs Make & How To Fix Them

To launch a business and ensure continuing success, it is important to learn about and understand your financial position and capacities. By spending time learning good financial habits for your business and focusing on how your business funds can be best utilized, you can avoid a number of mistakes that entrepreneur make. Here four common mistakes entrepreneurs make and how to fix them.

Miscalculating your cashflows

One of the biggest reasons for business failure is undercapitalization. What this means is that the business does not have a cushion for covering their expenses while they working towards creating a steady stream of revenues.

You need to understand your business’s cash flows and burn rate to get a handle on this situation. Begin by putting together your business’ monthly operational spending – rent, staff salaries, utilities, maintenance, vendors, and office supplies are a few that come to mind. As a business owner, if you are looking for funding for your company, lenders will first evaluate your cash flows to consider you for funding.

[READ: Five Signs You May Be Headed For A Cash Crunch]

Seeking financing too late

Many businesses and young start-ups are bootstrapped and or have not actively looked for funding during their initial stages. You can use your savings to meet your business’s operational expenses, but when your face a crunch, you will find yourself with very few resources, which in turn will hurt your borrowing capacity when you approach a bank or a lender.

You should develop a plan to line up reliable sources of funding before your business needs them so that you will be able to solve for short-term cash holes or a major crises. Plus, by adopting this practice you show that you are future-oriented which will help you anticipate and seize new opportunities as they come.

Unfamiliarity with financing options

Oftentimes, entrepreneurs and business owners are unaware of the variety of financing options available in the market which are best suited to their business requirements and cost less. By keeping a keen eye on what type of financing will work best with your business model, you can save on interest and infuse much needed cash into your business.

Today, there are a variety of options available through banks, NBFCs, and online lenders. Examine the advantages and disadvantages of different loan types. Compare lenders’ rates, terms, and services. Do not opt for anything less than the best-possible funding option for your business.

[READ: Why Keep Your Business & Personal Finance Separate?]

Overreliance on Credit Cards

Credit cards should never be the only option to meet your daily business expenses. If you are undercapitalized and are using only credit cards, you may find yourself in a tough situation when you run into unexpected expenses. Credit cards can help you in meeting short-term needs, but they cannot be a comprehensive solution for your business needs. If you use credit cards, seek those that offer a zero percent interest, use the card only for your business expenses and keep track of your spending.

Your business will have the best opportunity for success when you have sufficient capital to run it. ZoukLoans provides funding solutions to small- and medium-sized businesses. Learn about our financial products HERE. Or visit us at www.zoukloans.com.

[zoukloans]

Five Signs You Need to Seek Help to Manage Your Debt

Five Signs You Need to Seek Help to Manage Your Debt

Having debt - as a loan, or a credit line or advance payments – is not always bad. Debt is a great way to make money available for business or personal expenses. However, debt can create problems when it becomes runaway debt, and you are having trouble servicing it regularly or keeping up with your borrowing. Here are some key scenarios that can lead to bad debt and when to seek professional help:

Taking a loan to repay a loan

If the loan that you are seeking does not have a relatively lower interest rate, taking a loan to pay for an old loan is a bad idea. Not only is it counterproductive, you stand to pay more interest. A loan should be taken keeping in mind the best and the most cost-effective way of being able to repay it. By taking a new loan you can increase your tenure, which will lower your EMI payments, but the interest you pay on it will go up. It goes without saying that you will be in debt for much longer, which will affect your future borrowing capacity and your credit rating.

[Read- Five signs you could be headed for a cash crunch]

Volatile savings

If all your earnings go towards meeting your debt obligations and your expenses, it is high time you seek expert advice. It is important to have savings that can be used in times when money is tight. It also allows access to new debt financing products available in the market and increases the chances of your loan application being accepted by a bank.  If your savings are little or close to zero and you find no debt solutions that can help you save, you may be in a tough spot. Get advice on which products are best suited for your needs and how much you will be able to save depending on your financial situation.

Over-reliance on credit cards

A big indicator that your financial are out of shape is that you are relying heavily on your credit cards to service your debt. As your debt increases, servicing it with credit cards can create difficulties. It goes on to show that because you are using your credit card for your expenses, your may not be of sound finance health. So, if you find yourself in a cash strapped situation and have to rely on credit cards to fund your expenses, you should opt for the services of an advisor.

[Learn more about the basics of a Line of Credit HERE]

Minimum payments

When you are using a credit card, you have two payment terms you need to take care of. The first is the due amount and the other the minimum amount, usually 1% of the outstanding principal (interest and other fees levied by your bank). If you are only paying the minimum amount on your credit card, it can take you many months or even years to pay back the entire due amount. If you find yourself in such a situation, it is a good idea to seek professional help.

[Why Keep your Business and Personal Credit Separate? Learn more here]

Missing repayment deadlines – The biggest marker of runaway debt is your inability to make your payments on time. By missing payment deadlines on your debt or your bills, you hurt your financial profile and creditworthiness. This creates a two-fold problem. Firstly, you have to find a new source of funding to pay your bills, or wait for your next pay cheque. Secondly, the delay can accrue as increase in interest on the payments you have been missing and hurting your borrowing capacity.

ZoukLoans offers expert debt and financial advisory to businesses to create a sound financial strategy, and helps you find the best loan products that are personalized according to your needs. To know more, click HERE, or visit www.zoukloans.com

[zoukloans]

Borrowing from a bank vs an online lender

If you are searching for a loan to buy a car, property renovation or consolidate your credit cards, would you like to dress up, spend some gasoline, waste your efficiency through tiring travels and then finally get trapped in the complex conversations of the bank with minimal choice to make.

Or would you simply make smarter choices and invest the hard earned money judiciously. You can sit back on your chairs and make nifty decisions by using online opportunities, which has become safer and cleverer day-by-day. Because the current technology understands that the money you earn is associated with a lot of hard work so technology caters the users with rising precision and comfort.

Traditional loans from the banks are associated with a lot of hard work for borrowers as they have to specially make visit plans, stand in the long queues of the bank, need to battle to find time of lending team to understand policies, make decisions, if convinced then arrangement of documents and proofs, multiple visits for approval etc.

There is no scope of interest rates negotiations, which is the biggest drawback of traditional lending system. If the borrower is not satisfied with the lending policies of the bank then he/she has to meander on the streets to find shelter of loan in the other limited stream of banks.

[Learn more about how to keep your business and personal credit separate HERE]

In the points raised so far, banks are willing to lend, but borrowers are struggling to make the decisions. In real life, there are situations in which the borrower is in dire need of money but the bank requirements are so rigid that they are often refused a loan. In situations like this, banks decline the requests leaving the customer with unusual difficulties and the least expected occurrence is that the borrower compromise on the interest rates and are often looted by the banks.

On the other hand, in the age of technology where information travels at lightning fast speed, the demand of online lending has been growing and borrowers are increasingly using fintech companies for their funding needs.

Today, time is money, and the best feature of online lending is that it is a faster source of getting a loan. It is not only accessible for young generation who can reach out but also for old/disabled people in need. It spreads out in a global fashion enabling the people of remote location to access the facilities and benefits out of online lending. You don’t need to be necessarily at the location where the bank is situated but you can be present PAN India and the banks can process your requirements distantly within certain process.

[Five signs your company may be headed for a cash crunch: READ]

There has been an increasing acceptance of online lending with the belief that the data and money is absolutely secured in the entire procedure of online transactions. It is just a myth that the traditional banks have better security of data, even traditional banks have all your financial information stored in a big data center that could be vulnerable to hackers. "Data theft is a very real risk these days, but, unfortunately, as a consumer, it doesn't come down to whether you choose to bank online".

There is a huge competition in online lending market today, which caters to the simple fact of business that more the number of loan providers lesser are the interest rates. To stay in the market, loan providers compete with maximum services and minimum interest rates which are favorable for the customers and less burden on their shoulders.

[Addressing the Small- and Medium-sized Business Debt Gap in India: READ]

Online lenders follow a more streamlined approach than a hassling queue in traditional bank. They use easy to understand ways to convey the requirements before loan to the customers and carry forward more structurally, which makes the process stress-free. This further leads to instantaneous approvals of the loan which acts as star feature to online banking system.

Usually in case of traditional bank loans, the loan policies sounds like a sales pitch to the clients, which brings the borrower in trauma to act without any more interest in the product. But online lending portal is a voluntary action taken by the borrower to reach out   to the source of loan that makes the process more trustable.

With the power of customizable products to offer loans products as per the requirement of the borrower and unique financial advisory services to the borrowers that helps to enhance decision-making, online lending has become friendlier to the users. It is the time when online lending comes in mind even before lending from banks because it is FASTER, EASIER AND EFFICENT.

ZoukLoans brings a unique range of financial products and services catering to small and medium-sized businesses in India. To check out lowest interest rate loan products offered by ZoukLoans, click HERE, or visit us at www.zoukloans.com

[zoukloans]

Basics of ‘Line of Credit’

Basics of ‘Line of Credit’

In the lending industry today, there are a host of products available that help businesses have flexibility with borrowing money. One of the most popular ways businesses have used to fund their operations, take up new business, and expand is through a ‘line of credit’.

What is a Line of Credit

A line of credit as the name suggests is a flexible (fixed or revolving) loan from a lender to a business or individual. Unlike a traditional business loan, a line of credit is an arrangement between the business and the lender where a maximum loan balance is established. Based on this balance (maintained at all times), businesses can draw down on a line of credit at any time, as long as they do not exceed the maximum limit set.

Through a line of credit, you can borrow on a fixed or a revolving basis. A line of credit is very similar to how a credit card works but is a comparatively low-risk revenue source. It offers a set amount of funds that a business can take when, if, and how the business wishes to use it. Borrowers can repay the loan annually, and the interest is paid only on the amount that is spent. There is an option to pay off the loan immediately also.  

[To know more about fixed lines of credit and revolving lines of credit, READ]

Features

A line of credit is considered a short-term capital loan. It is a great way to infuse money to aid growth opportunities and take up strategic investment for your businesses. Businesses have been using a line of credit to make inventory and equipment purchases, paying salaries, and funding expenditure on a company’s ongoing and future projects. It helps to smoothen the impact of variable monthly income and expenses in a business’ operation cycle. A line of credit is also an ideal option to use when a business is in dire need of some urgent cash.

As a type of flexible loan, a line of credit will charge interest beginning from the day the funds are borrowed. The borrower (or borrowers) must be approved by the lender (based on the borrower’s credit rating and their past relationship with the lender).

[Learn more about your Credit Score and how to manage it effectively HERE]

Line of Credit vs Business Loan

A line of credit is less expensive than a business loan because it comes with flexible terms. In the case of a business loan, the borrower will need to pay a fixed amount (principle and interest) at the end of every month even if the allotted funds have not been entirely utilized. But with a line of credit, the borrower pays only for the amount that they are using.

For instance, if the total amount borrowed is Rs. 10 lakhs and only Rs 1 lakh is spent, the borrower will pay interest only on Rs 1 lakh and not on the total amount. If this were a business loan arrangement, the borrower would need to pay interest on the entire Rs 10 lakh amount every time.

Lenders are often not very interested in underwriting a one-time personal loan, especially of an unsecured variety. Similarly, it is unwise for a borrower to take out a loan every few months, repay it and borrow again through a new loan. Lines of credit solve for this by making a specified amount of funds available to the borrower if and when they want it.

With a rapidly changing lending landscape in the country, entry of innovative debt products and new credit assessment standards, business funding, especially for small and medium sized companies, is becoming more comprehensive and far-reaching every day. 

ZoukLoans brings this SME-centric approach to its loan products making them ideal for small businesses looking for funding.

To apply for a line of credit through ZoukLoans, or to know more about ZoukLoans products, click HERE, or visit us on www.zoukloans.com

[zoukloans]

Finance for Upgrading your Company Equipment

Finance for Upgrading your Company Equipment

At some point or the other, your business may need to upgrade the equipment requirements it has to run smoothly, or your business may simply outgrow the equipment. There are several signs that your business needs to buy acquire new equipment or upgrade existing ones. Your business may be growing fast, and your equipment needs to keep up. You are looking to boost productivity by incorporating technology and automating your processes. Or your existing equipment may simple have become obsolete or irrelevant to the task your business has set for itself.

In these scenarios it becomes necessary to make an equipment upgrade. For some businesses, upgrading can be a challenging task given budgets and costs. What are the best options available to fund your business’s equipment needs? What solutions make it easy for your business to make the upgrade and save money at the same time?

Today, there are financing options available that make acquiring all types of equipment from computers and telephones to heavy machinery easy, nominal and hassle-free. These are two of the best options for businesses looking to upgrade their equipment:

Equipment Leasing

Equipment leasing, as the name suggests, allows business to rent equipment for an agreed duration. Leasing is a great way for cash-strapped businesses to fund their equipment needs, as lump sum amount does not have to be raised upfront. When you lease, you can rent the equipment you need when you need it. Your payment on the equipment is only the rent you to pay for it for the duration you use it, rather than the full price of the equipment.

Leasing is also great for when you know that the equipment you need will require upgradation on a regular basis (eg. computers, phones, etc). The leasing of equipment does not appear on your balance sheet, leading to additional tax savings. You also save money as you do not have to worry about the equipment depreciating, giving you greater value. With leasing, you also have the option to buy back the equipment after the end of the lease period. 

Equipment Loan

If the equipment you are looking to acquire is one of the productive assets or a central fixture in your business’s operations, applying for an equipment loan is in your best interest. There are several heavy machinery and equipment that are relatively unaffected by depreciation (eg, agricultural and industrial machinery), and as such an upgradation or replacement can be done by taking a loan for the purchase.

You pay less because you buy the equipment in its entirety, and own it for the entire lifecycle of the equipment. You do not have to put up any additional collateral when applying for an equipment loan, as the equipment itself becomes the collateral to secure the loan. If you are looking to buy an equipment that you business is going to use in the long-term, equipment finance is the best option available.

If you believe the time is right to make an upgrade or replace some of your equipment, work with ZoukLoans on your leasing or financing plan. To apply for an equipment loan or an equipment lease, click HERE or visit us at www.zoukloans.com.

[zoukloans]

Factoring/Receivables Finance 101

What is Factoring?

Factoring is a type of debt financing where a business sells its invoices or accounts receivables to a lender (also called ‘factor’). By selling the invoices to the factor, the business can avail cash instantly rather than wait for the stipulated 30-60 days to receive payments from the customer. Factoring is also called Accounts Receivable Financing.

The lender can provide you with an advance against the invoice which can be as much as 80-95% of the invoice amount. Factoring is also one of the fastest types of receivables financing – disbursement takes as little as 24-48 hours. The loan is made against the type of industry you are in, your customer’s credit histories and your company’s sales.

After you have received financing from the lender, your customer pays the complete invoice amount directly to the factor. The factor deducts its fee (for assuming collection risk) and you are paid back the remaining balance on the invoice.

Advantages of Factoring

There are a number of ways in which factoring can be an important financial tool for many businesses, especially for start-ups and young companies. The biggest advantage is that through factoring, you can provide a quick boost to your business cash flow.

Factoring is different from a traditional loan in the way that no debt is assumed in the case of factoring. Through factoring, you can also receive unrestricted funds giving your company a lot of flexibility. This type of financing is ideal to commit to your business’ short-term working capital needs. Factoring is fast and easy – ZoukLoans provides accounts receivables financing in as little as 48 hours.

Here’s an example to illustrate how factoring works:

ABC Transport is a trucking company in Delhi with plans to expand its fleet of trucks and serve more customers in the neighbouring states in the coming two years. ABC Transport recently landed a new client in Rajasthan who needs goods transported between Rajasthan and Punjab.

The client will pay the company in 30 days. ABC Transport finds it difficult to cover the fuel, payroll and maintenance costs of plying that route during the month. The company has faced similar issues before and feel that lack of working capital restricts the company from taking up more business.

ABC Transport goes to a factoring company where they sell the Rajasthan client’s invoice in exchange for an 85% advance on the invoice amount, which they receive within 48 hours of applying. The factoring cash helps the company to run the Rajasthan-Punjab route smoothly, while giving them the flexibility to take up business with new customers as well.

ZoukLoans offers as much as 95% percent of the invoice amount raised through Factoring in a fast and hassle-free manner. To learn more, click HERE or visit us @ www.zoukloans.com.

[zoukloans]

Why Keep Your Business and Personal Credit Separate

Why Keep Your Business and Personal Credit Separate

According to several reports on the state of SME finance in India, more than half of small business owners who apply for loans fail to obtain them. Amongst the top reasons for this are poor business and personal credit score and a mismatch between the small business’ and the lender’s priorities.

There are simple and proven ways for entrepreneurs to get what they need for their business. The first step in the direction is to be aware of how personal and business credit scores affect your borrowing capacity. On average, a business owner uses at least 10 times as much credit as a personal consumer. So, it’s almost impossible to run, let alone scale a business, using personal credit only.

By taking steps to build a credit profile for your business, which is separate from your personal profile, you will be able to access as much as 10-50 times more credit than you could through your personal account. This extra capacity can be immensely beneficial for any business’s finance and working capital requirements.

How to get started?

Set up your Business as a Separate Legal Entity

Based on the type, size and sector you are in, your business can be registered as a sole proprietorship, an LLC or a partnership. A quick conversation with your CA/tax advisor will help you determine which legal entity is the best fit for your business and financial circumstances. By doing so, you take the first steps in creating a separate pathway for your business and personal finances. You will be able to move out of your personal liability, and your business will be able to attract investments, avail tax benefits, and build a robust business credit profile.

Register a Business Bank Account

By having a separate banking account for your business account, you can organize your business finances with much more clarity and it allows you to make concerted decisions on where you’re spending. It takes hardly a day to set up an account with your bank. Your business account allows your business to use employee payments as tax deductions from income. You can also show personal income for the purpose of loans, credit lines and taxes. Business lenders will also have a better picture your how your business is performing based on your bank statements.

Build a Business Credit History

After setting up a bank account, apply for a credit card or a business line of credit and ensure that you make repayments on time. By being punctual with your payments, you constantly improve your business’ credit score. Another benefit is that you can deduct interest from a business credit card versus a personal one. By having a line of credit separate from your personal credit, you keep your personal credit profit untouched and are able to strategically put business funds to best use.

Open Vendor Credit Lines

If you business has a network of vendors or suppliers, it is a good idea to open lines of credit with them, alongside your business credit card. It allows you a window of between 15-90 days to pay your suppliers and service vendors. You can open several accounts with various vendors and suppliers you have. By making on-time payments to their suppliers, you contribute directly to your credit health. The biggest advantage of having vendor credit lines is that it allows greater access to credit in the future with better payment and interest terms.

[Learn about supply-chain finance for suppliers and manufacturers HERE]

Check Business Credit Regularly

After putting all of these healthy practises in place, the next step is to continue the momentum and stay on top of your business credit. Banks and lenders, as you continue to grow your relationship with them, will assess your business creditworthiness on a regular basis. If your credit is slumping, your loan terms will be stricter. Or you may find yourself cash-strapped to pay a vendor now rather than after the pre-set payment period. To avoid such problems, all you have to do is check in on your credit health regularly to create milestones and gain an understanding of how all the different types of business credit you have avail are performing and take necessary action when the situation demands it.

[Learn more about why you should regularly check in on your business debt HERE]

ZoukLoans offers debt financing for young and growing businesses based on their performance and profitability. Check out our loan offerings HERE or visit us at www.zoukloans.com

[zoukloans]

5 Signs You Could Be Headed for a Cash Crunch

5 Signs You Could Be Headed for a Cash Crunch

All is going well for your business. You have a new string of customers looking for your products and services. Your business’ sales are up and you are profitable – but what does it mean for your business bank account? With a sudden influx or dry spell, any business can be on the brink of a temporary cash crunch. There are a number of accounts payable solutions that you can use to avoid it. Here are five warning signs that may mean that your business may be facing cash flow problems:

Growing too fast

A fast and steady growth is like a problem that an entrepreneur will like to have. However, pragmatically, growing faster than the pace you can handle or growing beyond expectations can cause serious problems to your cash flows. When business grows, it will mean that you will have to hire more help or employees, buy or rent a bigger office or factory to give products and services to your new clients. These changes will need immediate funding. If the profits from your business aren’t enough to pay for the upcoming expenses, you can start worrying about a cash crunch problem.

Delayed payments on bills

It often happens that your customers are taking a long time in making their bill payments, are making partial payments or are delaying payments altogether. Any of these, especially for a small business, can mean a sudden cash crunch – even more so when it reflects a wider financially weak behaviour of your clients. It becomes important to keep an eye on your receivables and to check them on a regular basis. You should put in place a mechanism for due dates of receivables and talk to your customers whenever a payment has not been made on time. Without continuously flow of capital into your business, you can face a temporary shortage of funds that can potential paralyze other functions.

Managing payables

One of the mistakes that business owners often make is that they make payments on their own payables before payments from their customers. This obviously sets you up for a cash strapped situation. You should try to delay payments to your vendors as long as possible while keeping enough cash in the bank to keep your business going. By using automatic payment tools or direct debiting you can make sure that you are making your payments on time and miss deadlines. This will also reflect positively on our overall credit rating.

Working capital cushion

One of the unexpected situations for which small business are ill-prepared are when a major client has suddenly left or has stopped paying on time. If a large chunk of your business depends on this client or clients, it can mean certain doom for your capital requirements to keep the business going. Always communicate with the customers with the biggest invoices and get a commitment for a payment date. Also, in preparation for such a scenario, it will be advisable to get a business line of credit as backup – ideally applied for before the need arises.

Monitoring of cash flows

If you are not keeping a firm eye on your business’ cash flow, you are in for a number of difficulties. Working with multiple clients with varying models of payment – there will be several due dates, payment cycles and cash volumes. You should manage these effectively, identify problems and work proactively towards solving them. By using an accounting software, you can easily generate a financial report and review your financial statements. Make this a regular practice depending on the levels of your business – daily, weekly or fortnightly. By identifying the reasons for your cash crunch and understanding when cash inflows will increase, you should readjust your payment schedule to avoid liquidity issues.

To check out working capital and business loans offered by ZoukLoans, click HERE, or visit us at www.zoukloans.com

[zoukloans]

Types of Credit: Installment vs. Revolving

Types of Credit: Installment Credit vs. Revolving Credit

When banks and lenders look at your credit score, one of the factors taken into consideration is the type of credit accounts you have. This forms a 10 percent portion of your CIBIL score and by keeping a check on it you can nudge your score a little higher to avail better financing options at lower rates.

While you go about managing your credit, it is important that you know what an installment account and a revolving account is, and the differences between them. By understanding the type of credit account you have, it will not only help you manage your credit better, but can be a useful tool for improving financial health and future borrowing capacity.

Installment Credit

An installment credit account is simply defined as an account where you make regular payments on a monthly, quarterly or a fixed-time basis. An installment credit can come in the form of a mortgage, car loan, or an education loan. A number of P2P loans and personal loans also fall under this category.

Lenders charge you an annual percentage rate (APR) which is the interest that the lender earns on making the loan to you. An installment based loan has a clear starting point (when the loan is disbursed) and an end point (when the loan is repaid). Installment credit gives you a fixed amount on one loan. If you want to borrow more, you will have to apply for another loan.

Installment credit becomes important to your CIBIL credit score because it shows that you have been making your payments over time which exhibits discipline in financial management and a sound repayment capacity.

For instance, a big installment-based loan like a mortgage becomes especially helpful to your credit score if you are capable of making mortgage payments every month. This shows the bank or lender that you are responsible in managing your money and have the finances to handle long-term payments. The often repeated maxim of making regular, on-time payments thus becomes very important to your credit.

Revolving Credit

A revolving line of credit comes in two forms. The first one is marked by your ability to keep borrowing from an existing line of credit. The best example of revolving account is a credit card. You are given a credit limit and as long as you make your payments on time, you will have credit made avail to you every month.

Another example of a revolving account is a home equity line of credit. You avail a loan against property which allows you to borrow a certain amount based on the equity in your property. You do not have to apply for another loan to borrow more. Instead, as you keep making regular payments and free up more room, you can avail a revolving line of credit.

Because you are not borrowing a lump sum when the account is opened, there is no set payment plan with revolving credit. You are merely granted the ability to borrow up to a certain amount. This flexibility often results in lower borrowing amounts and higher interest rates. Revolving credit bears great significance to your overall credit history. In juxtaposition to an installment account, a revolving credit account shows that you have the capacity to manage your finances in a sustainable and continual fashion.

Revolving credit forms a big chunk of the credit utilization parameter of your credit score – as much as 30 percent. This means that if you carry high balances or are maxing out your revolving accounts, it can drag your score down. If you continue to make regular payments on the revolving line and stay within the limit set by your credit account, it can boost your score tremendously.

A good CIBIL profile will have a balance mix of both installment and revolving accounts. When you have both types of accounts, it is unarguable proof to the lenders that you have a great eye for managing your money, especially keeping different types of borrowing in play and this reflects positively on your credit history.

To check out debt financing solutions offered by ZoukLoans, click HERE or visit us at www.zoukloans.com

[zoukloans]

Why You Should Regularly Check in on Your Business Debt

Why You Should Regularly Check in on Your Business Debt

More often than not, business owners go on auto-pilot when it comes to paying off debt. They may have a payment plan, or automatic bank withdrawals that take care of repayment every month, and then they do not give their loans a second thought.

While this is understandably the safe and convenient way to go about paying off your debt, being kept busy by other needs of your business – you may be missing out on an opportunity to put together a better debt repayment strategy that can save you valuable cash.

Here are reasons why a yearly or biannual review of your debt can be helpful for your business:

It takes time to build your credit score. As a young business or entrepreneur, just start out, you are likely to not have a credit history that will qualify you for loans at the best interest rates. This can mean that you owe more interest as you continue to pay off your debt.

However, if you are making on time and steady payments for your loan, your credit score will have also improved. In the future, this means that you qualify for better loan options. It also means that you can pick a better deal on your current loan by refinancing it at a lower rate. Your improved credit score can directly lower your monthly repayments. It is good practice to review this yearly or biannually.

With time, your situation will change significant as your business grows. This will impact the best debt strategy your company should adopt. For instance, if your revenue has steadily grown, you will have a significant amount of cash, which can be used to pay off your debt before time and save on paying extra interest.

Or, if your plans are to expand or diversify your business but do not have sufficient funds, you can glean from your debt review strategies that will let you have access to new and cheaper sources of lending. It will give evidence if you will qualify for new loans or if you have to plan your expansion through other sources.

If you have a healthy and growing credit score and your business’s financial situation has improved, you will also be able to take out a lone of credit – giving you a lot of flexibility in managing your business finances. For instance, if you have taken out a number of loans, you can lower your total repayment by combining them all into one loan.

Another important reason to do a yearly or biannual debt review is to find out if you qualify for new products and loan options that are a closer fit with your business strategy. As you set up relationships with a substantial customer base, built your supply-chain networks, you can have access to innovative new products based on performance.

New businesses typically do not have many assets. However, after the first few years, you would have accumulated valuable assets like inventory and equipment. These can be used as collateral for asset-backed loans – opening new options that will make your qualify for bigger loans and better rates of interest.

Too many businesses are unaware of the important of a yearly or biannual debt review. Presented above are only some of the possible ways in which a debt review makes a better debt repayment strategy. Make sure this doesn’t happen to you; scheduling your debt review yearly or every two years, and find better loan options and products for your business as it continues to grow.

ZoukLoans offers debt financing for young and growing businesses based on their performance and profitability. Check out our loan offerings HERE or visit us at www.zoukloans.com

[zoukloans]

Purchase-Order Financing for Suppliers & Manufacturers

How manufacturing & supply-chain businesses can use Purchase-Order Financing to complete new orders

Here’s the situation: You are a small business that sells a cosmetic product. You have been in business two years and sell your product through an e-commerce portal. Your business is making profit and sells 10000 units every month. You get a call from a big retailer who wants to put your product in 100 retail locations. If your product sells, the retailer will take up your product for their locations across the country.

You are excited about the opportunity until you hear that the retailer will require 100,000 units from you by the next month. How do you raise the cash to make the product you sell and fill in this big order?

Use Purchase-Order Financing

As a small business owner, when you need cash up front to complete an order, purchase-order financing is one of the best ways to finance your order and keep your client happy. Purchase-order (PO) financing allows for short-term capital lending that covers the cost of manufacturing and shipping goods.

Purchase order financing involves a bank or lender who pays you, the supplier to manufacture goods that have been ordered to fulfill an order for a customer. This is an advance and will cover as much as 70-80% of the costs. The purchase order finance company will collect the invoice from the end customer and charge the company in need of funds, that is you, a small fee as interest. This fee is taken out of the collected invoice and the remaining amount is returned to the company.

In the above example, the supplier that manufactures the cosmetic product can be paid by a Purchase Order loan that you have brought on board to successfully complete the retailer’s big order. After you have shipped the units and received the invoice, the Purchase Order lender will be paid off by a factor.

Easy, right?

The basic flow of a Purchase Order loans is the same for all business and depends on the moving parts of your business rather than on more traditional parameters. If your business needs inventory to complete a big order and you do not have cash to produce that inventory, Purchase Order financing is an attractive option to handle your cash-flows.

Purchase Order financing can be a great solution for cash-poor small businesses or business that are new and getting started – and those who may find themselves unable to have access to traditional business loans.

Explore Purchase Order Financing options for your business through ZoukLoans an avail the most innovative best-in-market offerings. To learn more, click HERE or visit us at www.zoukloans.com

[zoukloans]

How To of Equipment Finance

How To of Equipment Finance

Getting equipment financing can be a short, streamlined way to finance up to 90% of the value of equipment (industrial and medical), computers, machinery, vehicles that your business needs.

How Equipment Financing Works

When your business needs to buy equipment, availing a business equipment loan is a smart financial move. Equipment Financing can be sought to purchase virtually all types of business equipment, from heavy machinery to computers. How much you can borrow depends only on the type of equipment you are buying, its use and if the equipment is new or used.

An Equipment Finance loans is similar to a car loan. The equipment becomes the collateral to secure your loan so that you won’t have to put up any additional collateral. Most equipment loans are made at a fixed interest rate – usually between 10-18% - and offer fixed length tenures so that your monthly repayment obligations are always the same.

You can even extend the term of your equipment loan based on the nature of equipment to be bought and its expected life. Equipment loan is different from leasing equipment. The advantage is that after the loan amount has been paid off, you own the equipment for perpetuity.

For instance, you want to purchase equipment that costs INR 10 lakh. An equipment finance company will offer to upfront you the cash to purchase the equipment and charge an interest, let’s say 12%, to do so. You arrive at a fixed repayment tenure with your lender where you will pay back the loan in 36 months (3 years). With a 12% APR, the INR 10 lakh equipment will cost you INR 11.95 lakh (1.95 lakh as interest). The monthly payments will come down to a mere INR 33.2 thousand and you can spread your financial obligations over a large period of time. 

Who Can Qualify

Equipment Finance is one of the most easily accessible loan options and is available to most businesses. How much you qualify for and the interest rate that you will pay depends on the value of the equipment, you business history and its performance, and your credit rating. Equipment financing becomes a fitting option if your credit rating is less than perfect, or if you do not want to put up collateral, as the equipment itself collateralizes the loan.

The biggest advantage with Equipment Finance is that you do not have to pay the entire cost of the equipment up front, which may be difficult for a number of small businesses or which may cause a sudden cash crunch. Your will be able to spread the cost of the equipment over an extended period of time that will lead to better management of your company finances and assets.

Why Avail Equipment Financing Through ZoukLoans?

Loans ranging from 65%- 90% of the asset value for commercial equipment and 85-90% of the asset value for medical equipment.

Loans to all businesses and self-employed professionals including first-time users and first-time buyers.

Catering to businesses across 1000 + pincodes in India through our wide reach, online platform and distribution networks.

Flexibility in EMI payment structure.

The very best in market interest rates and tenures.

ZoukLoans tailors financial solutions to address the unique challenges of your organization and offer customized and flexible solutions across diversified industries. Our products and services are structured with your financial and business requirements in mind. With our expert knowledge of the Indian business environment, we offer best-in-class solutions customized for your business needs. Visit HERE for more details.

[zoukloans]

A Guide to CIBIL Credit Score

A Guide to CIBIL credit score

When you approach a bank or a financial institution to avail a loan or a credit card, the first step the lender takes is to check your credit score through CIBIL. Your CIBIL score is a report card of your financial health and borrowing capacity.

What is CIBIL?

CIBIL, or Credit Information Bureau of India Ltd., is India’s first credit information portal that collects and maintains record of all individuals and corporate entities with respect to their credit and borrowing history. CIBIL has been licensed by the Reserve Bank of India (RBI) and is governed by the Credit Information Companies (Regulation) Act of 2005. Banks, NBFCs and online lenders use CIBIL scores as a barometer to check your credit worthiness and determine if they will offer or deny you a credit line.

CIBIL and credit score

Through its proprietary and patented algorithms, CIBIL publishes a three-digit credit score for all individuals and businesses. The credit score is derived from your financial history, which includes past loan sanctions, loan repayments, repayment history, late payments, cheque bounces, credit usage, amongst others. Using these factors, CIBIL gives you a CIBIL TransUnion Score, which is in the range between 300 and 900. The closer your score is to 900, the better your financial health and the better your standing as a potential borrower.

Parameters involved in your CIBIL score calculation

Your CIBIL score comprises a number of criteria that are assigned different weightage. The biggest share of 35% is dedicated to your repayment history and your performance on your past loans. If you have made regular payments your score improves, or if you were late with your payments or have defaulted on your EMIs in the past, your score will be lowered.

The second parameter is the utilization of your credit, which holds a 25% weightage. The credit utilization ratio defines whether your credit utilization is up to the mark or not. The ratio is measured by comparing the outstanding balances on all your credit cards and your overall credit limit. The higher your credit utilization ratio is, the lower your CIBIL score.

The duration of time for which you hold credit accounts for 15% of the CIBIL score. A long credit history helps you get a higher CIBIL score, given that you have been making repayments on time.

Another 10% weightage is given to the enquiries made on your account by banks, NBFCs and online lenders. If you have regularly sought loans and credit cards, it can affect your score as it may be seen as aggressive behaviour.

Does no credit history equal a good credit score?

If you have never applied for credit, and thereby have no credit history, there will be no record of your repayment history. When you apply for a loan or credit, the lender will check your CIBIL score and without any credit history, your core will be marked as ‘NA’ or ‘NH’ that suggests no record. Such a score is viewed negatively and with no credit history to gauge you, you have some difficulty availing a large credit or a loan.

Reading CIBIL score

Although CIBIL scores range between 300 – 900, it does not mean that your score will begin at 300. Your initial score will begin somewhere between 300-900, and then reaches its apparent value based on your repayment history and financial credentials. A score of 700 and above is considered as excellent for lending. If your score is between 600-700, you still have a number of options, with the exception of a few, to avail a credit line. If your sore is below 500, chances are that you will be a bad bet for a loan and immediate attention is required to repair your score.

How can I get my CIBIL score?

You can download the form on CIBIL’s website to request your score at https://www.cibil.com/online/credit-score-check.do. You will have to submit identification documents like a passport or PAN along with the form. After submitting the documents you will have to make a payment of Rs 500 to receive your CIBIL TransUnion Score and you will be allotted a unique CIBIL registration ID. The system will ask you three questions related to your credit history, after which your score card will be process and emailed to you within four working days.

CIBIL score is an important barometer of your financial health. Always strive to maintain a healthy CIBIL score so that your loan or other credit facilities do not suffer any unwarranted rejections.

[zoukloans]

Four Ways Borrowing is Better than Giving Up Equity

Four Ways Borrowing Money is Better than Giving Up Equity

A widely repeated maxim is that no debt means good debt. However, for businesses, the truth about debt and debt financing are greatly different and full of potential for raising money and fuel growth. For one thing, debt financing can be used to fund just about any kind (or size) of business.

Not all borrowing is bad. For small businesses, it is important that they take a concerted look at their financial requirements and how best they can raise funds to grow. Here’s four reasons why debt can be used to gain leverage and is better than selling equity and being weigh down by external pressures.

Less expensive than equity

When you are raising funds for your business, equity is almost always a more expensive option (24-36 percent more expensive) in the long-term than when you take on debt. Equity costs you a part of your business for the entirety of its lifetime. When you start out, your business will required that you have inventory, equipment and pay salaries. Investors will help you by infusing capital into your business, but you will sacrifice future profits indefinitely to fix a short to mid-term financial need.

With debt, on the other hand, you will Pay interest but it is temporary and capped, and there are vast numbers of options available to suit your needs. In debt financing, lenders, unlike investors, don't have any say in how you run your business. With debt financing, business owners enter into a relationship with lenders that ends as soon as the lender has been paid back. Once your pay back your debt, you have your equity intact.

Cheaper than opportunity cost

You have just started a business and have to complete your first order. You lack the capital to buy inventory. Let’s say the inventory cost is Rs 100K and the product will sell for Rs 300K. Now, should you borrow Rs 100K at the cost of Rs 20K (example interest amount) to complete the order? If you look at the annual percentage rate (APR) on the loan, you will see that for a one-year loan, this will represent a 20 percent APR. If, however, it were a two-week loans, that’d be a 520 percent APR.

As a small business, you will see the wisdom in paying the oddly high 520 percent APR because the return on this investment will be high, making good business sense. In absolute terms, you will make Rs 180K in profits. The opportunity cost of avoiding Rs 20K in interest is Rs 180K. That is all the math that you need. What this shows is that if you have the right opportunities in hand, debt is most likely the better choice to raise capital and boost revenues. Your business can profit from debt financing and open new growth channels. Whenever the return is higher, the debt is the best option.

Reduces tax burden

Several new business and young entrepreneur are unaware of an important benefit of borrowing. The cost of interest reduces your taxable profits thereby decreasing your tax liability. When you borrow, the effective interest rate you are paying is lower than the nominal interest.

As a young business, you should factor this aspect of debt financing into your thinking. It is this lower cost of capital that is to be factored when calculating returns from taking on debt. This particular aspect of debt financing sets it further apart from selling equity to finance business growth. When you receive cash through equity, you’re paying off the equity holder with cash directly from your business with no benefits. While if you opt for debt financing, you will have the benefit of lower taxes.

Debt equals discipline

Taking on debt brings with it a responsibility and discipline with respect to your spending. This can be the most crucial element in business success, especially in the formative and growth years. The incentive to make the optimal use of every rupee you have lessens when you have cash in hand. It is easy to fall into the trap of spending to expand from the core necessities to nice-to-haves. However, when cash is tight, the bar for spending is higher as each decision and transaction must be financially justifiable.

The discipline brought on by debt makes businesses and its employees to take responsibility and ownership to squeeze the most value out of every stage of production, thus putting your company on the fast track for better margins.

If you go about your debt financing in the right way, it can open up new and positive avenues for growth and profitability of your small business. Debt is a useful strategic tool for growing businesses and is often a cheaper option to raise funds than other alternatives in the market. With competition becoming fiercer everyday and businesses vying for newer markets and customers, you must be savvy about using debt finance products to help your business perform to its fullest potential.

To learn more about debt finance options avail through ZoukLoans, view our product portfolio HERE or visit us at www.zoukloans.com.

[zoukloans]

Addressing the MSME Debt Gap

Addressing the MSME Debt Gap

The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services, and levels of technology adoption. The sector makes significant contributions to India’s overall GDP, exports and employment growth. In 2012-13, MSMEs formed 37.5 percent of the India’s total GDP and has since been growing steadily. The manufacturing sector accounts for an estimated 29 percent of total enterprises in the MSME sector, while the services based enterprises form the remaining 71 percent; totaling 21.43 million formal enterprises.

Finance as an enabler of growth

One of the key enablers of economic growth in the MSME sector is the availability of finance. For MSMEs, finance includes equity capital, loans for fixed asset investment and working capital for meeting cash flow gaps. Despite the gradual rise of financing directed towards MSME, it is still considerably lower taking into account the overall capital demand of the sector.

There is a total demand-supply gap of INR 3.57 trillion for the MSME sector, (after excluding debt and equity demand). This opens incredible opportunities for formal financial institutions to tap. The viable debt gap that can be addressed by formal financial institutions in the near term in the manufacturing and services sector is INR 2.15 trillion ($42 billion) and INR 0.78 trillion ($16.6 billion), respectively.

Differentiated finance options for MSMEs

Growth is fundamental to the success of any business or enterprises. The biggest barrier in the development and growth of MSMEs is their inability to obtain external or internal financing, which may affect starting capital, start-up costs, requirements for buying (expensive) raw materials, high wholesale prices amongst a host of other financial needs.

Access to sufficient funds that can be channeled to meet fixed capital and working capital requirements are one of the most important elements of this progress. Finance thus becomes one of the most critical inputs for growth and development of MSMEs. They need financial support not only for the running and upkeep of the enterprise but also for diversification, modernization, upgradation and capacity building to name a few measures.

Alternative sources of finance can, therefore, step in an assist MSMEs in their growth and development. In recent years, a plethora of alternative finance options have emerged and have proven to be an important and integral source of financing for Indian MSMEs. The idea of “one size fits all” does not make much sense in a competitive environment.

There is a need to create a differentiate narrative for the MSMEs. MSMEs need customized financial products that cover life cycles of their enterprises. Banking and financial institutions have a huge opportunity of viable business from MSMEs because this sector stands as a strong pillar of inclusive growth in an economy. Financial institutions have the challenge to customize their products to meet the innovative needs of MSMEs at competitive rates for the sector to grow.

Judging from the growth numbers and the existing economic and political climate, MSMEs are wont to occupy the central place as engines of growth for India’s economy. This has been proven by the present government’s recognition and emphasis on the Make in India programme. MSMEs present a significant business opportunity for both banks and finance organizations. Financial exclusion is high in the MSME sector and access to adequate and timely credit is still a critical question for them to steer towards growth and multiplying opportunities.

[zoukloans]

Four ways to finance a small import business

Four Ways to Finance an Import Business

We buy and sell products and services across international borders. Import and export businesses are everywhere - as wholesale distributors, independent buyers and retailers - buying goods in one country and selling them in another.

Are you looking to start a small import business and wondering how to make it profitable? The first question to ask is how to find start-up money and how to raise funds for your import business, including funds for your import operations. Running an import business requires special business finance skills due to the operational nature of your venture.

Here are four tested and customized methods to finance your import business. You may have to think about using more than one of these methods to obtain the funding you need.

Purchase Order Financing

For many importers, especially young businesses and start-ups, the best solution is purchase order financing. This provides supplier financing to cover letter of credit expenses for companies who already have confirmed purchase orders for pre-sold goods. Purchase order funding enables you to accept and fulfill large purchase orders – even those that exceed your current capitalization.

Purchase order financing has a higher interest rate than a traditional bank loan. If your profit margins on the goods you are importing are high, then purchase order financing is one of the best options for your importing business. Through purchase orders, you can creates linkages that help set up a good supply chain for your business and get creditworthy customers on board at the same time.

Financing Using Inventory

You can use your inventory to secure funding your import business. This type of financing is usually more expensive but is a very effective way of financing an importing business activity. Financing using inventory allows your business to get a loan and at the same time allows you to purchase imported inventory according to your customer’s and market’s requirements.

This allows you to increase your inventory without affecting your cash flow as long as you have a healthy history of servicing your debt. Three major types of inventory financing are available which you can apply for based on your needs. These are a blanket inventory lien, floor planning, or field warehousing. Using inventory to get a loan also makes it an asset-based loan.

Loans through fixed deposit

Fixed deposit is one of the most popular financial instruments known to us. Most banks will give you about 70-90% of your deposit as a loan or an overdraft facility. You can repay in equated monthly installments, or service only the interest amount, or even choose to pay back the entire amount borrowed when the deposit matures. Interest rate charged on the loan is usually 2-2.5 % above the interest paid by the bank on the deposit.

Moreover, you will continue to earn interest on the deposit though you have availed a loan against it. For instance, if you are earning interest at 8 % and are paying at 11.5 – 12 % on the loan, you are paying only 3.5-4 % effectively. The benefit of fix deposit loans is that you do not lose your liquidity - as all the funds are available to you, and you can use the funds for whatever purposes you deem fit.

Credit Guarantee Scheme

The government of India has launched the Credit Guarantee Scheme (CGS) under SIDBI and Ministry of MSME to make bank credit available to small and medium businesses without the hassle of collateral or third party guarantees. Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit facilities up to Rs.100 lakh can be sought under the guarantee scheme. Under this scheme, banks will look at the project viability of your loan application, and will offer credit purely on the primary security of the assets financed.

Through this process, you can get both term loans and working capital loans from the same lending body for your import operations. You can even go for joint financing through a government financial institutions and a commercial bank. This is beneficial because the CGS provides assurance to the lender against repayment, thus bringing banks and traditional lending bodies to serve businesses like yours. The Guarantee Trust of CFS will make good the loss incurred by the lender up to 75 - 85 % of the credit facility, in case of enterprise failure.