Arjun is the owner of a company that manufactures optical sensors for cameras. He wanted to invest money in research to improve the existing technology, but his profits were not high enough for him to do so. So he wanted to avail a loan from a bank, but the process was lengthy. With the new GST bill, Arjun will be the one among several entrepreneurs, who will have easier and transparent business loan access. He plans to invest the money into research and development. This will lead his firm to develop and implement new technology that will gain an edge in the competitive market and help him procure more clients.

What is GST?

Goods and Service Tax (GST) is a tax levied by the government on manufacturing and service industries. It will be implemented on 1 July, 2017, and will replace several existing taxes such as VAT, Octroi, excise and service tax. It is the biggest indirect tax reform in the country since independence. GST will bring several reforms in the way business is being done by SMEs and larger corporations.

How GST aids Businesses?

GST will have a positive impact on the economy, as it will revolutionise the way companies do their business. GST aims to reduce operational costs by reducing the tax burden on companies, which will also increase their profit margin. Elimination of several taxes and having one taxation system in place simplifies the process, thereby reducing tax evasion. Sometimes, companies will have clients from other states, who are interested in their products. But due to inter-state taxes and toll taxes, companies were forced to reconsider. When GST comes to force inter-state taxes will be eliminated. Thus companies can save on logistics and transportation facilities.

Also Read : How Businesses can use GST to manage Working Capital

Why Businesses need Loans?

Every business will require loans to finance their operational costs. Loans from financial institutions are relatively risk-free when compared to borrowing from other sources. A company will need to borrow loans to purchase equipment and inventories for business. When a company wants to expand to other locations, real estate is required. To purchase the office, they might avail a loan and it can also be used for day-to-day operations.

Loan Access after GST:

After the implementation of GST, businesses will have easier access to loans. Under the GST, it will be mandatory for companies to have digitized data regarding their business. Most SMEs are unorganized businesses and having a digital record of their business is the first step for them to be a part of the formal economy. Having a digital record will help companies avail a loan at much lower costs. It will also reduce the loan processing time and the amount of paperwork required by the financial organisation. Credit is essential for every company’s growth and it would be a huge advantage to companies, if they can avail it in an easier manner.

For a company to avail credit, the transaction trail needs to be digitized. This will lead to a transparent transaction statement and will display the inflow of cash. It will pinpoint where finances are being used, whether for inventory, equipment or upkeep. GST will reduce the rate of interest of the loans availed by the companies and this will go a long way in helping SMEs be on par with larger corporations.

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