At present, India retail industry accounts for more than 10% of the country’s GDP and over 8% employment. But a large percentage of small retailers in India still find it challenging to avail credit from nationalized and commercial banks to fund operations and growth. But many non-banking financial institutions (NBFCs) leverage advanced financial technologies (fintech) to provide new age credit products. POS based loan is one of the new age and technology-driven loan products. Here are 7 things to know about Point of sale finance.
At present, a number of NBFCs help small retailers in India to meet working capital needs by providing point of sale (POS) finance. Unlike conventional small business loans, the Point of Sale Finance enables small retailers to avail working capital loans without pledging any asset at collateral. At the same time, the retailers can also opt for Point of Sale Finance to avail credit based on the monthly sales routed through EDC terminals. The retailers have been switching from conventional credit products to Point of Sale Finance to avail a number of benefits.
Why Small Retailers have been switching from Conventional Loans to Point of Sale Finance?
Extend POS Terminals
The Government of India has been taking new initiatives to promote cashless and digital payments. It offers incentives to customers to switch from cash to cashless payment options. Also, the Indian government has reduced the cost of POS devices by waiving off excise duties. The number of small retailers installing EDC terminals has been increasing rapidly. Many small retailers nowadays leverage POS solutions to automate transaction processing and track real-time sales data. The new age lending institutions enable small retailers to extend POS systems and avail credit based on the sales routed through EDC terminals. They can also use virtual POS terminals for the same purpose.
Avail Collateral-Free Credit
Like small business owners, small retailers often find it challenging to avail credit from nationalized and commercial banks. Most lending institutions even require retailers to pledge their personal or business assets as collateral to avail credit. The non-banking financial companies (NBFCs) leverage latest financial technologies to provide collateral-free loan products like Point of Sale Finance. They require the borrower to meet a number of business loan eligibility criteria to avail POS financing. The eligibility criteria for Point of Sale Finance even differ from one lender to another. But each lender allows retailers to avail Point of Sale Finance without pledging his assets as collateral.
Avail Credit Based on Real-Time Data
While processing conventional small business loans, lending institutions do not consider latest and real-time sale data. They normally provide credit based on the financial records and cash flow statements. But the new age lending institutions provide Point of Sale Finance based on real time sales data. They even determine the loan amount based on the monthly sales routed by the retailer through EDC terminals. Hence, it becomes easier for the retailer to avail additional credit by routing customers to make payment using their debit or credit cards. Also, the retailer can avail the incentives provided by the Indian government to promote cashless payment.
Choose from Multiple Repayment Options
Many retailers still opt for term loans to fund working capital needs. They lenders require the retailers to repay the term loans with fixed EMIs. The lenders have to pay additional fees to pre-close a term loan. Hence, the retailers have to maintain a positive cash flow situation to pay EMIs on time and avoid late-payment penalty. But the fintech companies enable retailers to repay POS based loans through daily installments. A number of leading fintech loan providers in India even allow retailers to choose from multiple daily repayment options. The multiple daily repayment options help retailers to pay off the debt without impacting cash flow position.
Avoid Lengthy Appraisal and Disbursement Process
While processing a POS based loan request, the lending institutions consider a number of factors – the retailer’s past credit history and personal credit card, the business or operating address, and monthly sales routed through EDC terminals. But leading fintech companies in India still disburse Point of Sale Finance in 72 hours. Hence, it becomes easier for retailer to avail credit to meet immediate financial obligations and maintain positive cash flow. Many retailers nowadays prefer Point of Sale Finance to conventional small business loans to avail credit and use funds without length approval or disbursement process.
On the whole, Point of Sale Financing, as a modern alternative to conventional business loans, help retailers to fund working capital needs by availing credit quickly and conveniently. The small retailers can easily avail additional credit by persuading customers to use their debit and credit cards. They can even repay the Point of Sale Finance through multiple daily repayment options. Hence, many retailers nowadays opt for POS financing solutions to avail credit that can be repaid in a flexible and convenient way.