The implementation of GST in India has been a revolutionary step in building a comprehensive tax system in India. It has dramatically affected the way business is done throughout the country. It has managed to successfully standardize various indirect taxes that were levied by the state, union territories and central government. Not to forget the fact that the implementation of GST has surprisingly made a significant contribution to the growth of small and medium scale enterprises. First of all, the issue of dealing with multiple taxes has been sorted.
Additionally, the business owners are able to avail working capital loans from financial institutions by merely filing GST returns. Traditionally, availing business loan for small and micro enterprises have been extremely difficult, especially from the formal banking sector. However, now various banks and NBFCs have started providing business loans to small enterprises based on their GST returns.
The lending institutions are getting additional information apart from the enterprise’s balance sheet to rely upon as under the GST system. The GST data can be made available to lending institutions. This type of data-based lending is allowing businesses to avail credit without pledging any asset as collateral. The GST business loans are providing up to Rs. 1 crore of funding for working capital to businesses based on the turnover reflected in GSTR. Thus, whether it’s managing day to day expenses, purchase of inventory, or making a payment, all short term demands of a business can be met through this type of business loan. Besides a lot of paperwork and intensive assessment tasks becomes unnecessary, and the convenience is increased in this type of business loan.
Some key features of GST based Business loan are:
- As these loans are provided without any collateral, the disbursement and processing is quick and hassle-free.
- Due to the GST return, the documents required are minimal, which makes the processing faster.
- Since the loan is issued based on GSTR, it limits the amount of calculation and assessment required.
- In this type of business loan, the bank statement and audited balance sheet are not required.
Impact of GST Financing
The micro, small and medium enterprises are witnessing a surge in their growth as GST business loan has led to the free flow of finance and quick disbursement. The business owners are experiencing a lot of convenience in arranging capital as no assets are required to submit as collateral. A business loan can be disbursed based on the GST return without the need for further assessment.
GST has simplified the taxation system and reduced the complexities and paperwork that was required to avail a business loan. In addition, there has been a significant rise in the number of registered MSMEs under GST. The lenders also feel more secure in disbursing the loan to those units which are registered under GST and filing the returns. It can be concluded that after the implementation of GST, many enterprises are looking for expansion and various NBFCs and banks have identified this opportunity and are extending GST based business loans. Since there has been a rise in the number of GST compliant businesses, these business loans are available at a competitive rate of interest as well. So, whether you are a proprietor firm, partnership firm, a private company or a public company, if you are GST compliant, then you can apply for a GST based business loan.
Summary
The implementation of GST in India has changed the landscape of how business is done in the country. It has been a revolutionary step to build a comprehensive taxation system in the largest democratic country. GST has successfully managed to integrate multiple taxes levied by State, Union Territories and Central Government. Also, the introduction of GST has made a welcome contribution to the growth of micro, small and medium enterprises throughout the country. Not that they now do not have to deal with multiple taxes, but also they can get business loans for working capital much easily based on their GST return.
Various banks and NBFCs are advancing business loans based on GST return as the data of GST can be made available to lending institutions. This data-based lending has removed the necessity of going through intensive paperwork and assessments, which has made the process of availing loan very convenient. Up to Rs. 1 crore of a business loan can be advanced based on GST return. Through this short term demand of funds for inventory, daily expenses, or making any payment can be easily met.
Impact
Since the paperwork and assessment tasks are reduced, the business owners are easily able to avail the loan quickly. Also, as no asset is required for collateral, the convenience is much more. Considering the rise in the number of GST compliant MSMEs, the lenders also feel safe to invest and advance loan to units that are registered. Since the demand for GST based business loan is high, the rate of interest is competitive.
