Introduction
Running an industry leads to a lot of complications. Be that a manufacturing or service industry. If we talk about the Service Industry, it includes providing services to businesses or final consumers. That comprises Information Technology Services, Tourism, Restaurants, Transportation, Health Care, Entertainment, Clothing Brands, etc. So, IT is the most developing sector, constantly requiring funds for developing new software, starting a new company, and many others. But when asking for loans, the major gap they face is the collateral.
Since these companies generally do not have fixed assets for collateral, they generally cannot opt for secured loans. Perhaps, the only asset that they possess is Intellectual Property (IPR). The IPR can not be kept as collateral for finance. Therefore, these industries have to go to unsecured funding.
Unsecured Business funds for IT Industry
Having no assets as collateral, IT industries have to opt for unsecured funding. Unsecured loans get finance where collateral security is absent. The loan is provided based on the credit score of the borrower. Such a loan can be taken to overcome their short or long-term inconsistency in the operation. The Rate of Interest is comparatively high because of the absence of collateral. But Terkar Capital will arrange a reasonable cost of borrowing for you!
Understand the process of unsecured funding from the Case Study here.
Eligibility criteria for Unsecured Business Funds:
- Only creditworthy borrowers grant Unsecured loans. That is according to their CIBIL score. Many lenders require a score of 750. A score between 650 to 750 is considered favourable. Companies with low CIBIL scores face huge issues with this loan.
- Another criterion is that the borrower company must have a specific turnover for applying for unsecured funding. That varies according to the set criteria of different lending institutions.
- The minimum age of the borrower should be 21 and the maximum 65.
- The business should have been in operation for at least 3 years.
Learn everything you need to know about CIBIL Score here.
Few instruments in unsecured business Loans:
1. Business Term Loan
The term loan for business is available in both secured and unsecured ways. The type depends upon the availability of the collateral. So, it needs to be repaid in the form of EMIs within a defined period. This can be for the short-term, medium-term, or even long-term as per the various business needs of the company. The period from such a loan ranges from 1 to 5 years, which can go beyond 5 years. The loan can be used for business high-cost investments like expansion, purchase of expensive plants and machinery, etc.
2. Loan under CGTMSE
The Credit Guarantee Fund Trust for Micro and Small Enterprises. The government of India introduced this scheme in the year 2000. CGTMSE is a government-backed scheme for micro and small enterprises. Both the manufacturing and service industry grants the CGTMSE scheme. So, the scheme aims at strengthening the credit lending facility for industries facing funding issues.
3. Working Capital Finance
Many times it becomes difficult to manage finances. So, there comes the need for funds. Small or medium enterprises face these issues more frequently. Here, working capital finance helps in such a scenario. Working Capital is the difference between the company’s current assets and its current liability. This type of finance helps one in short-term operations like purchasing raw materials, undertaking operational payments, etc. Hence, the Working Capital facility allows one to run its operations smoothly and efficiently. Below is the list of a few of our working capital instruments:
The lender specifies this facility. Cash Credit enables customers to use the amount. And pay interest only on the used amount. Here, the amount cannot exceed the sanctioned amount. The amount of CC depends upon the credibility of the borrower.
Overdraft is the financial instrument allowed by the bank for their customer that enables you to withdraw money from your bank account even if you do not have such a favorable credit balance. One cannot exceed the limit given by the bank.
4. Bill Discounting
It is a method of trading where the seller gets the amount in advance before the maturity of the bill at a smaller amount than its actual, i.e., at a discounted rate. The reasons for discounting can be the requirement of working capital requirement, paying dues, and many more. In simple words, Bill Discounting can also be termed as Short Term Loans against a bill as security.
5. Factoring Funding
Factoring is the financial instrument or debtor finance in which the seller sells its accounts receivable to a third party called ‘factor’ at a discount. There are three parties involved in such a transaction: a seller, a buyer, and a factoring company. In simple words, it is selling unpaid invoices for the requirement of instant cash.
6. LC Discounting
It is a guarantee given by the bank to pay the seller for the buyer’s obligation, in case a buyer fails to make the payment. LC discounting takes away the risk and gives assurance to the seller of the funds.
7. Bank Guarantee
A Bank Guarantee is issued by the lender to the debtor to cover their liability in case of default. In case of the failure of payment by the debtor, the bank will pay on his behalf.
Learn more about the bank guarantee process in detail.
Raising unsecured business funds for the IT Industry
Adequate funding is essential for companies to operate the business and achieve growth. Under these circumstances, Terkar Capital’s financial products can be a quick solution to all the problems.
At Terkar Capital convenient and collateral-free funds can be used to address the urgent needs of finance and grow your business. So without having any second thoughts, approach Terkar Capital for both debt and equity funding solutions! We assist in raising unsecured business funds for the IT industry.
