Equal access to capital has long been an impediment for small and medium-sized enterprises (SMEs) in the country. Despite the incredible potential of SMEs to generate revenue and employment opportunities, acquiring the required amount of capital at the right time has been an arduous challenge.
Small business financing has been acknowledged as the facilitator of economic growth in India. Unsecured business loans have enabled small business owners to scale despite a plethora of challenges to growth and propel business plans. A GST loan is a type of unsecured business loan offering small business owners ample financial support. This article looks at what a GST business loan is and whether your business is eligible for it.
A GST loan is a type of unsecured business loan wherein the lender disburses the required loan amount without any security. The lender determines the credibility of a GST loan based on the GST returns filed by your enterprise. The audited financial accounts such as the profit and loss statement and balance sheet are duly examined, and the loan is sanctioned quickly. A GST business loan does not require the submission of any additional documents.
A GST loan works just like any other unsecured business loan in terms of functionality. The GST is calculated on the potential future profits of small business enterprises. The lending bodies closely monitor the financial records such as the balance sheet and P&L statements before disbursal. This type of business loan considers the GST return as the primary determiner of profitability.
GST loans have a host of benefits for small businesses. Here are the top reasons they are beneficial:
Small businesses often operate on limited liquidity and cash resources. For these businesses to be able to regulate cash flows efficiently, there is a need for capital infusion to support expenses. Small businesses rely on factors like seasonal demand, buyer payments, etc. which might fluctuate or face delays. In such situations, GST loans can help them tide over any gaps, so that operations can continue uninterrupted.
Small businesses might end up incurring penalties for missing vendor payments and other financial obligations. It can even result in legal escalations that would impact the running of the business. In order to avoid missing payments, MSMEs can opt for GST loans to have capital readily available when they need it.
Missing important tax payments like GST and other tax liabilities. Loan against GST can be an effective tool for tax planning, as well as quickly acquiring the capital needed to cover any shortfall. This ensures that MSMEs don’t default on tax liabilities, incurring penalties and scrutiny.
GST loan scheme also supports MSMEs in capital preservation by ensuring that they don’t have to dip into their reserves to finance their business expenses. By providing working capital support with minimal documentation, GST loans ensure that MSMEs can maintain their cash assets.
For MSMEs to grow, capital infusion is necessary, because they typically don’t have the resources to finance expansion plans themselves. Loan against GST can provide this essential capital infusion as needed, enabling steady growth.
A GST loan can be availed by private limited companies, sole proprietors, public limited companies, and partnership firms. Based on the nature of operations, credit history, and the amount of GST return, the interest rate for a GST business loan can fluctuate from one enterprise to the other.
Here are the basic eligibility criteria that apply to GST loans:
1. Business Registration: Your business must be a formally registered entity in order to acquire a GST loan.
2. GST Registration: You must be able to establish that you have GST registration and are in compliance with the tax laws under it.
3. Business Age and Turnover: Lenders generally ask for a minimum business vintage and turnover to establish your creditworthiness and eligibility for a GST loan.
4. Credit History: Many lenders rely on your credit history and score to gauge your creditworthiness. Having a high credit score can increase the chances of being approved for a GST loan.
Here are the documents required to apply for a GST loan:
Before applying for a GST loan you should keep in mind several factors, including the stability of your business and your capability to repay the loan. A GST business loan can provide you with working capital support so that you can focus on your business growth plans, but only if the capital is invested efficiently. Have a structured business plan in place and carefully consider how you would invest the loan amount before you apply for a loan,
MSME GST loan scheme is designed to make it easy for small businesses to access capital, but make sure to carefully understand the loan terms and interest rate before applying.
The offerings at Kinara Capital are ideal for entrepreneurs looking for a business loan to commence or expand operations with ease. We disburse collateral-free business loans from Rs. 1 to 30 lakhs to small business owners based on their financial history. GST return filings are not compulsory with our advanced digital loan application, you can get collateral-free loans with minimum documentation requirements. Business owners can avail of a business loan in as little as 24-hours by applying through our website or the myKinara mobile application. So, whether your business qualifies for a GST loan or not, you can reach out to Kinara Capital to get adequate financial support.
GST business loans are an easy and reliable way for MSMEs to access capital they need to run or expand their businesses. All the usual considerations of eligibility, usage and repayment apply to these loans. However, since they are issued against the fulfilment of GST liabilities, the paperwork is simple and the loans are more accessible to MSMEs. Lenders like Kinara Capital extend the benefits of quick and easy access to collateral-free loans across all their loan products. If you are an MSME entrepreneur, do your due diligence before choosing the right lender and loan product to suit your needs.
FAQs
How can a GST business loan help my business grow in the current market?
A GST business loan can provide the readily available capital for the day-to-day operations of your business, helping you focus on growth. It can also provide the capital you need to add assets and expand your business operations.
Are there specific industries or sectors that are more eligible for GST business loans?
Yes, a GST business loan can be used to expand your business to new locations by covering expenses such as leasing, renovation, and hiring.
Can I use a GST business loan to expand my business to new locations?
Yes, you can use the capital infusion from a GST business loan to expand your business to new locations by investing in new premises and outlets.
Are there any restrictions on how I can use the funds from a GST business loan?
While there are generally no strict restrictions, lenders expect funds to be used for legitimate business purposes like working capital, expansion, or equipment purchases.
What are the key factors that lenders consider when determining the loan amount for a GST business loan?
Lenders consider factors like business financials, credit history, cash flow, and loan purpose when determining the loan amount.
Are there any tax benefits associated with a GST business loan?
Interest paid on GST business loans is tax deductible. You can deduct the interest amount from the business expenditure to arrive at the taxable amount.
How can I improve my chances of getting approved for a GST business loan?
Have a solid business plan in place, improve your credit score, and have a clear idea of the loan purpose before applying.
