Why Bill Discounting Should be Your Preferred Choice over Unsecured Commercial Loans
In today’s super competitive business environment, one cannot afford to have a imbalanced flow of money. However due to unforeseen circumstances or extended credit periods of customers, it can get imbalanced. Here, questions arise of arranging more capital. The traditional method in this regard is an unsecured commercial loan. However, there is another lesser-known but highly useful method of Invoice discounting.
Traditional Unsecured Commercial Loans:
For businesses in need of cash, the unsecured commercial loan offers a fair deal of flexibility. No collateral is required of the borrower in an apparently inviting loan model. But it should be where scrutiny so far of unsecured commercial loans makes a look at the other side necessary.
High-Interest Rates: Since an unsecured commercial loan is bereft of any collateral, the risks associated with such loans are significantly higher as far as the creditors are concerned. In view of this, significantly higher rates of interest are charged on unsecured loans compared to secured ones.
Tough Credit Checks: The creditworthiness of applicants for an unsecured commercial loan is checked strictly. The businesses having a poor record of creditworthiness may either be rejected or less preferential treatment may be accorded in sanctioning the loan.
Lengthy Application Process: Applications for unsecured commercial loans take quite a long time because there are many financial documents to be gathered and returned. This delays the much-needed funds, impeding business operations.
Strained cash flow: High interest rates in unsecured commercial loans can significantly bleed the cash flow of a company. A large portion of the loan, instead of being invested in the business monthly, gets repaid in the form of interest. This reduces the ability to give any investment in a growth initiative, running a marketing campaign, or even purchasing critical inventories. In the worst scenario, it results in corner cutting or borrowing more means to bluff business financial stability.
Weakness of Borrowing Capacity: Less desirable loan conditions, such as high interest and short payoff periods attendant to an unsecured commercial loan, will weaken the borrowing capacity of a company. This readily becomes a large issue when circumstances beyond one’s control suddenly develop or when a business is going through a small setback. With little access to more capital to help navigate through the storms or adjust to market fluctuations, the company is severely hindered.
Focus Shift: The long-drawn process of making an application for an unsecured commercial loan may divert the concentration and attention of the company away from the core business operations. The key personnel who are in charge and responsible for managing the financing and running of the organisation will be occupied by the collection and compilation of documents, answering queries, and negotiation of loan terms. This could result in slowing down other major projects, failure to meet deadlines, and a general decline in productivity.
Psychological Effect: Uncertainty over whether unsecured commercial loans will be approved may be a weighty load on the psyche of the business owner or manager. The fear of refusal or adverse loan terms instigates fear and creates risk aversion to these calculated risks, which are very pertinent to the development of the business. This not only dampens innovation but hinders the corporation’s ability to seize new opportunities.
Reputational Risk: The repeated rejections for unsecured commercial loans taint the books of a company’s financial reputation. Any new investors, partners, or vendors who may consider associating with the company will view it as too risky an investment to be dealt with; this incurs problems in securing future funding or new business.
Impact on Credit Score: Even when finally approved, an unsecured commercial loan application itself can hurt the credit score of the company. This further reduces borrowing opportunities for the company in the future and potentially raises the price of acquiring other forms of credit through some kind of vicious circle.
In contrast, Invoice discounting makes a distinction by tackling these concerns. With faster funding approvals, lower effective costs, and a credit-independent approach, it enables any business to maintain good cash flow, focus on core operations, and be more agile in tiding over troubled times.
Invoice Discounting: An Integrated Solution
Invoice discounting thus emerges as a very attractive alternative to unsecured business loans, with the following benefits:
Faster Access to Capital: While the unsecured commercial loan gives ventures the opportunity to monetise outstanding invoices for cash in an instant, Invoice discounting does this in a very short period of time, usually within 24-72 hours. This will then become a fast mode of access to funds, continuing the bridge of broken cash flow and assuring business continuity.
Better Cash Flow Management: Every business would be in a position to improve its working capital by the immediate availability of cash for the issued invoices. It helps the entity to meet the operation expenses, pay off the pending debts, and invest in upcoming opportunities.
Fewer Documents: Compared to the application process involved in an unsecured commercial loan, the process involved in Invoice discounting requires minimal documentation. Primarily, the business needs to furnish the invoices along with some basic company information to raise funds.
Credit-Independent Financing: Invoice discounting is dependent on the creditworthiness of the customer who is paying the invoice and not on the business that is borrowing. This makes it an effective financing option for companies with shallow credit history or those that deal with fluctuating financial conditions.
KredX: Your Trustworthy Associate in Bill Discounting
At KredX, we make the process of bill discounting much easier to get through—a quick, seamlessly
useful experience for businesses. Here’s how KredX Empowers you:
Large Network of Investors
KredX has a large network of pre-approved investor bases that look for high-quality receivables. This ensures competitive rates of discount and faster funding approvals.
Transparent Process: In the process of bill discounting, KredX undertakes complete transparency. It ismade to understand each and every step from submitting an invoice to fund disbursement.
Seamless Online Platform: KredX offers an easy-to-use online platform that makes it seamless to submit and track invoices. Businesses can efficiently manage their entire bill discounting experience.
Case in Point: How Bill Discounting Benefits Businesses
Imagine a company, ABC Ltd., issuing an invoice of ₹ 100,000 to clients with the next 60-day payment term. To be able to spender immediate funds on operational costs, ABC Ltd. has the following options:
The business explores the availability of an unsecured commercial loan, whereby there is no collateral backing. The interest rate is steep, though, at 15% per annum. The organisational application takes two weeks, and approval is always subjected to a rigorous credit check.
Bill Discounting with KredX: ABC Ltd. avails of KredX’s facilities in bill discounting. KredX arranges for the sale of the invoice to a network of investors at a discount rate of 2%. ABC Ltd. gets ₹ 98,000 in 48 hours; in comparison with the unsecured commercial loan, it is much faster and at far less effective cost.
The example clearly illustrates additional advantages of bill discounting over an unsecured commercial loan. Bill discounting not only facilitates quick access to capital but also improves cash flow management and is an independent credit financing solution.
While there’s a place for unsecured commercial loans, bill discounting offers heaps more to businesses in pivotal need of immediate cash flow. Using KredX’s seamless platform and a vast network of investors, businesses could extract every ounce of potential from Bill Discounting to get much-needed financial flexibility. So, the next time you think that your cash flow needs that extra boost of energy, accept bill discounting as a strategic alternative that comes with many benefits compared to unsecured commercial loans.
