Author: Ashish James

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Tax Saving Tips for Entrepreneurs

Tax Saving Tips for Entrepreneurs

Entrepreneurs and business owners are accountable for paying income tax on the revenues generated. Every entrepreneur or business owner must accept the hard reality that they pay a portion of their revenue to the government as tax. This can be a sizable sum, and they are always in search of deductions and exemptions to minimize their tax reduction. However, we have to contribute towards paying income tax, and we can’t escape from this duty because it is ultimately a source of revenue for the government. Here are a few tax-saving tips that startups and entrepreneurs can follow:

Hire Family Members 

Hiring family members can be an important step in reducing taxes. If this family member is not earning any other income, the company can pay them even ₹2.5 lakhs per year (with the current tax slab) without any tax outgo. 

This will ensure that they don’t become liable to pay taxes. Since the salaries paid to the employees are a cost to the company, it can be set off against the company’s taxable income, thereby reducing the overall tax outgo of the company.

Travelling and Accommodation

It is common for entrepreneurs to travel to places for business needs. This is done more broadly if entrepreneurs have branches spread across several cities. If you are to save taxes, then the next time you travel, book your travel tickets and accommodation at the company’s expense and not from your account. This is considered a business expense and can be deducted from the taxable income of the company.

Invest in Marketing

If you are still using the old ways of marketing, then it’s high time that you implement digital marketing as it helps you reach out to more potential customers thereby increasing the probability of finding new customers. This will also benefit you from the tax point of view as marketing expenses are eligible for tax deductions. 

Business Utilities

Business owners using their vehicles and phones can show utility expenses. For instance, expenses on phones, vehicles, parking charges, driver’s salary, and so on are claimable if made purely for business purposes. If you are operating your home, then electricity expenses are also claimable. This will help in reducing the tax burden. The following are some of the business utility expenses that are claimable for deductions:

Medical Insurance

The premiums up to Rs 25,000 paid towards medical insurance can be claimed for tax deductions under Section 80D of the Income Tax Act, 1961. You can cover your spouse, children, and parents under this. If you operate a startup concurrently with a full-time job where the employer offers medical insurance coverage, this does not apply.

Correctly Deduct Tax at Source

There are specific clauses under the Income Tax Act under which the entrepreneurs purchasing a service or product can deduct the tax at source when making payments to the seller. If an individual does not do so, then those expenses will not be admissible and will result in an additional tax burden.

For instance, if you pay Rs 3,00,000 as a commission to an agent and fail to deduct the tax at the rate of 10%, then the whole of Rs 3,00,000 will not be allowed while determining the taxable profit.

Donation

Donating money gives you the satisfaction of doing a good deed and tax benefits. To save taxes by making donations, you need to donate to registered charities and funds such as PM’s relief fund. You can also donate to a recognized political party to claim tax breaks.

Housing Loan

It will be a long-term asset and can be appreciated significantly over time and comes with tax benefits. You can claim tax deductions of up to Rs 1,50,000 a year under Section 80C of the Income Tax, and you can include the interest on the housing loan under this part of the deductions.

Depreciation

Government authorities grant additional tax benefits to companies operating in the manufacturing sector. In the year the companies put new equipment and machinery into use, they can claim up to 20% additional depreciation, in addition to the regular depreciation, if installed over a year, under Section 35AD.

Digital Transactions

In this era of dealing with things digitally, it would not be wise to pay your workers in cash. Furthermore, you will be on the red list of the income tax department. If you make a cash payment of more than Rs 20,000 to an individual in a single transaction, your account books will disallow it. Therefore, your taxability increases. Hence, it is always advisable to pay your workers through bank transfer.

A rupee saved is a rupee earned. When there are several tax-saving provisions, it is only wise to make use of them. Implementing tax-saving practices will prove beneficial in the long run.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your report.

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Role of Project Report in Bank Loan Approval 

Information from different aspects like technical, financial, economic, production, and managerial are important for any business. They play a significant role in the business phases of startup, growth, and expansion.

What is a Project Report?

A written document associated with forecasting future income & expenditure and its financial viability. The project report includes information that proves the potential of a project/business idea. A project report is mandatory for availing funds and loans from financial institutions and banks for business funding.  It assists the entrepreneur in getting an accurate idea about the primary inputs required for the business. The project report is required even if the business is new and just started.

The project report significantly contains details about the financial, economic, managerial, production, and technical aspects of the business. This also includes in-depth information & analysis about resource requirements such as production, machinery, manufacturing process, manufacturing capacity, the requirement of raw materials, manpower, power and water, and other business-related expenses. 

Is it mandatory?

A business needs to present the project report for bank loans including a business plan, projected financials, viability study, technical analysis, etc., for availing loan. Likewise, for a startup, a project report is the first important document that needs to be handy whenever they are seeking any kind of funding from VC, or private equity.

The project report should be presented in the accepted format such as the CMA data format for bank loans. However, the project report format for bank loans depends on the type of loan as well. Concerning small loan schemes such as the Mudra loan, it is just a basic form of project report where only financial projections for three years are required

Who can make it?

The task and process of making an appropriate project report are crucial. Therefore, experts such as Chartered Accountants, professionals, and former bankers normally prepare project reports. It usually takes weeks to months to make one project report. But now it’s easy. With Finline you can make a project report within 10 minutes that too in your language.

Why Professionally Made Project Report?

It is a very essential document to create an opinion about the future performance of a company/business.

1. Availing of the working capital loan, term loan, and other loans from banks or financial institutions.

2. Making a presentation to get the equity participation of the investor.

3. Structuring/restructuring bank loan / financial and business strategies of the firm.

4. Buying, taking over or starting a new business.

5. Making proper disposal of an existing business.

6. Assessing the value of the project or the business.

Also Read: Project Report Format for Bank Loan
Why Bank verify the Information?

The bank must verify the financial aspects and other information displayed in the project report before dispensing the loan to the business. Accordingly, it is recommended to prepare an excellent project report for a bank loan approval with all the inevitable details regarding the financial projects of the business. However, the data provided in financial projections are just based on a base judgment basis and cannot be verified. Still, bankers need to check the feasibility of the assumptions made. 

What if they reject your project report?

If the bank rejects the proposed project report for the loan, the business firm seeking the loan can prepare another project report and reapply or submit the project report to another bank or financial institution.

Failure to present a project report may result in rejection by the bank and then you have to reapply or reconsider the information entitled in the reports.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, all public and private sector banks working in India accept our project report. Click to create your report.

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Debt Financing 

Debt financing for startups means getting the borrowed funds. When a startup borrows money from outside at interest, it is called finance through debts. There are options for raising finance namely either through debt or equity or through a combination of both debt and equity. Thus debt financing and equity financing are major sources of finance for any business.

What are various Sources of Debt Financing?

There are a lot of debt financing instruments available in the market sources. Some of the most prominent are as under:

Bank loan/Business loan

Business Loans are provided by banks and financial institutions either with or without collateral security. Banks will often assess the individual financial situation of each company and offer loan sizes and interest rates accordingly.

Loans may be for short-term purposes or long-term purposes depending upon business requirements like working capital requirement or capital assets purchase or expansion of business etc.

Trade Credit

This is a form of arrangement wherein companies can pay later for goods purchased now. Thus this is short-term debt financing. Also, no collateral security is required. Therefore, this is most convenient for small businesses and startups.

Installment Purchase

This is again a good way of debt financing. Here, the buyer mortgages the assets which it wants to purchase and makes payments in fixed installments. This is suitable for those companies which have a higher credit rating in the market. They can easily purchase assets from banks and finance companies without mortgaging any additional assets.

Asset Based Lenders

These lenders are finance companies and provide money to companies for purchasing assets on the basis of the mortgage of assets of the company like stock, debtors, etc. Accordingly, it is very useful for companies with high inventory, debtors, etc.

Bonds

Individuals or entities that purchase the bond then become creditors by loaning money to the business. A traditional bond certificate includes a principal value, a term by which repayment must be completed, and an interest rate.

Factoring

Some banks offer the facility of factoring. Here, a business gets money upfront from a banker on the basis of invoices raised to customers and doesn’t have to wait for customers to pay them. For this facility, some commission is charged by the banker.

Insurance Companies

Insurance companies act as a major source of finance for small companies. They provide two types of loans to businesses namely; mortgage loans and policy loans. A mortgage loan can be availed by mortgaging any asset of the company.

Inter-corporate Loans 

A company can take a loan from another company for financial requirements. While taking such a loan it has to comply with the provisions of the Companies Act.   

Advantages of Debt Financing 
  • Debt is a cheaper source of finance as compared to equity financing.
  • It gets tax advantage as interest paid on debt is deductible as a business expense whereas a dividend paid to a shareholder is not a business deductible expense.
  • The main reason that companies choose to finance through debt rather than equity is to preserve company ownership. 
  • In the case of insolvency, debt holders are safer than equity holders because debt holders have a priority claim on assets of the company whereas equity holders do not have any such priority or protection.
  • Since debt has lesser risk, therefore, they is cheaper as compared to equity. Equity holders have higher returns as compared to debt.
Disadvantages of Debt Financing
  • Debt may be a good option initially but as the company becomes overleveraged, the cost of raising debt becomes high.
  • In case of more debt in a company, its Credit ratings also decrease.
  • They need to ensure the business generates enough income to pay for regular installments of principal and interest.
  • If the business should fail, the debt must still be repaid. Collateral to the lender puts their business assets at risk, and sometimes even their assets. Above all, they risk potential bankruptcy. 
  • In the case of debt financing, the borrower has a high risk as compared to the lender. Even if there is no profit in the company, still interest and principal amount still need to be repaid.

Debt financing is a great source of financing. It serves long-term as well as short-term needs. The advantage of debt financing is that there is no need to share the ownership with anyone. Hence, the control remains with the promoters without any interference from outsiders.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, all public and private sector banks working in India accept our project report. Click to create your report.

 

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Investment Opportunities after Covid-19

There has been a significant change in the investment Opportunities after the Covid-19 pandemic. The new social norms like social distancing due to health-related concerns and the lockdown restrictions mandated by the government had consumers turn towards the e-market and e-commerce website.

COVID situation has provided at-home solutions and purchasing options for both leisure as well as work. The pandemic has opened up new opportunities in digitalization for digital media, e-commerce websites, and digital payments, particularly in the Asia-Pacific (APAC) region. 

Impacts of the COVID-19 pandemic on the opportunities in investment and how it has changed forever.
1. Positive effects on certain sectors

Venture capitalists and private equity investors were already benefiting from the rapid growth opportunities provided by the healthcare sector. Increased healthcare expenditures are driving the growth of this sector in this region. The sectors like online pharmacy and Telehealth businesses have shown immense growth due to an increase in demand from customers. 

2. The emergence of new investment opportunities

 The nature of the available opportunities for investments in different types of deals has also changed due to the COVID-19 pandemic. To counter the challenges of liquidity and revitalizing the business, many business owners are focusing on the core assets of the entity which will push the carve-outs trend a major throwback. This trend will remove the preferred control deals and will create newer opportunities for venture capitalists and private equity funds.

3. Some sectors have become an attraction due to lower valuation

The lockdown norms in the pandemic significantly devalued sectors that relied more on the physical movement of employees, required social contacts, or involved in-person transactions. Right now the investors are finding those businesses more lucrative and attractive lacking liquidity and will be forced to be sold at lower than expected prices.

4. Accelerated the emerging trends in technology

 The competition to be more technologically advanced has presented tremendous opportunities to investors and venture capitalists. Artificial technology (AI) has also provided virtual solutions and has become a hot trend in recent years. The pandemic has only widened its scope.

5. Scarcity in debt-finance

It is assumed that due to COVID, the share of debt financing in the capital structure deals is likely to fall tremendously. To justify higher-level equities, you need stronger investments.

6. New investment schemes have been created due to behavioural shifts

The pandemic has changed the prospectus of certain areas. For instance, the trend of working from home has become more popular therefore, the importance of connectivity services, apps, and cybersecurity has gained importance too. 

7. Holding periods are likely to get longer

Due to lower value, many entities will attract investors and venture capitalists to take over the firms. In already invested companies, the funds will need to rethink their exit strategies as well. The exit strategies for private equity firms and venture capitalists will be changed too.

The change that COVID-19 has triggered has brought a lot of impacts. With changing dynamics, longer working hours due to work from home model, changes in working conditions, etc investors seek safety and wealth preservation.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your report.

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Startup India

The Startup India campaign was started in 2016 to encourage entrepreneurship in India. The objective was to reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance costs low. It was also to promote bank financing to startups and grant various tax exemptions and other benefits to startups.

The government has also

provided conditions/ guidelines for eligible startups

What are the criteria for Eligible Startups?

An eligible startup must fulfil the following conditions

  • Private Limited Companies, Registered Partnership Firms, and Limited Liability Partnerships. Therefore, sole proprietorship firms, Public Limited Companies, and NGOs are not applicable.
  • The entity must register or incorporate within less than 7 years from the date of incorporation. Companies should register or incorporate biotechnology startups up to 10 years from the date of incorporation.
  • Annual Turnover of the company shall not exceed Rs 25 crores in any of the preceding financial years.
  • The objective of the company should be towards innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.
  • The company should not have been formed by splitting up or reconstructing a business already in existence.
  • It must obtain certification from the Inter-Ministerial Board set up for such a purpose.
What are the benefits of registering as a Startup with Startup India?

The benefits of registering as a Startup are as under:

  • A simple online procedure shall allow startups to self-certify compliance with 6 Labour Laws and 3 Environmental Laws.
  • No inspection by officers for 5 years in case of labour laws.  Startups may be inspected only on receipt of a credible and verifiable complaint of violation, filed in writing, and approved by at least one level senior to the inspecting officer.
  • Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) in the case of environmental laws, would be able to self-certify compliance and only random checks would be carried out in such cases.
  • Refund/ rebate of fees paid at the time of patent registration and Trademark application.
How to register a startup with Startup India?
Step -1: Register your business in India

Register your business as either a Private Limited Company or LLP or registered Partnership firm and take PAN, TAN, GST no. etc

Step -2: Register your company with Startup India

You need to log into the Startup India website to create your profile. After creating a profile, apply for various acceleration, incubator/mentorship programs, Learning and Development programs, Government Schemes, etc

Step -3: Apply for DPIIT Recognition

After creating a profile on the website, apply for DPIIT recognition i.e. Department for Promotion of Industry and Internal Trade (DPIIT). This helps startups to avail Income tax exemption for 3 consecutive years and tax exemption on investment above fair market value, access to intellectual property services, self-certification under labour and environmental laws, easy winding up of company, becomes eligible for getting funds, etc

Step -4: Recognition Application

The ‘Recognition Application Detail’ page opens. On this page click on ‘View Details’ under the Registration Details section. Fill up the ‘Startup Recognition Form’ and click on ‘Submit.

Step 5: Submit Documents for Registration
  • Copy of certificate of incorporation
  • Details of the Directors
  • Proof of concept like pitch deck/website link/video (in case of a validation/ early traction/scaling stage startup)
  • Patent and trademark details (Optional)
  • PAN Number
Step 6: Certificate of Recognition

Finally, you will receive a recognition number for your startup. In case there is any mistake in uploading documents or forged documents are uploaded, you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.

What are the Tax exemptions allowed to Eligible Startups under Startup India?
  • Tax holiday for 3 years in a block of 7 years period

Startups incorporated between 1st April 2016 and 31st March 2022 are eligible for this. However, annual turnover does not exceed Rs 25 crores in any financial year 

  • Exemption from Angel Tax

The government has removed the angel tax in the case of startups. Startups do not have to pay any taxes on investment value above fair market value.

  • Exemption from tax on Long-term capital gains:

Eligible startups invest their long-term capital gain, this capital gain taxes shall be exempt as per newly introduced section 54EE of the Income Tax Act. 

In conclusion, Start-up India is not just a government initiative, it gives you the best opportunity to start your entrepreneurship journey. Make the best use of it!

If you are an entrepreneur looking for a bank loan, A project report is a necessary document. By submitting a good project report, you increase the chances of your loan approval. Finline helps you do the same. Using Finline you can craft a compelling project report in less than 10 minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your project report.

Now there is nothing stopping you from starting your dream business. Begin your journey with Finline right away!

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Advantages and Disadvantages of Project Finance

What is project finance?

Project financing is the process of providing funds for a particular project, frequently one involving construction or finance, in which the creditors rely on working capital and project revenues to recover their initial investments.

Essentially, this means that the investor understands the financial flows and recognizes that the only way to pay off debts is by generating profits. In other words, project investments are meant to ensure that the project funds itself, and consequently, they constitute the sole guarantee of project completion.

Now let’s get straight to the point and explain the advantages and disadvantages of project financing.

Advantages of project financing

Effective Allocation of Debt

With the aid of project financing, sponsors can borrow money over and above what their parents can afford. This loan can serve as a standalone transaction. It remains unaffected by the creditworthiness of its sponsors. Therefore, depending entirely on the value and possibilities of the project, more advantageous and flexible loan conditions can be negotiated.

Management of Risk

As was already said, the segregation of the parents’ and SPV’s legal identities is what genuinely distinguishes project finance. This vastly increases diversity and dilutes the risk factor. The parent company’s stockholders are shielded from changes in the project’s outcome. The sponsors’ equity contribution is the maximum amount for which they are liable. The danger is also decreased when many companies are involved. It is common for many businesses to join together to create a single SPV. As a result, the same level of risk decreases when more parties share it, reducing each party’s exposure.

large-scale economies

An SPV will almost certainly exhibit economies of scale when launched by many parents. Only when two modern businesses can clearly understand how their alliance would benefit them will they agree to work together toward a similar objective. One organisation might significantly gain at the cost of the other, and vice versa, especially in the construction and manufacturing industries.

For the sale of extracted material, for instance, a mining business and an extraction company could agree to work together. There will be some vertical synergies. The scale and earnings that both organisations can achieve are ones that neither could have achieved on their own. They will also be able to negotiate more favourably with both buyers and sellers.

Disadvantages of Project Financing

Sophistication

A step up from a straightforward credit transaction is project financing. Several parties have built it through a series of contracts, each of which involved difficult discussions. If adequate discretion is not used, it may be challenging to keep track of the money’s transfer among the parties concerned. Additionally, an imagined entity (SPV) routes all transactions. As a result, it is crucial to have specialised resources that constantly keep an eye on the flow of transactions.

Documentation and Conformity

A special-purpose vehicle (SPV) must be set up, which is a laborious, costly, and time-consuming operation. Before giving the SPV any credit at all, banks and other financial institutions carry out extensive research and inspections. An SPV’s sponsors bear the burden of this agonizing procedure because they must be doubly certain of the company’s stability and prospects for the future.

A project finance initiative also attracts the government’s attention. When approving the formation of an SPV, the government is very cautious. This is because many newly formed parallel groups have a history of engaging in egregious violations of laws, including tax evasion, money laundering, and rule-breaking. Therefore, to earn its confidence, a prospective SPV must be diligent and adhere to all requirements.

Constant Professional Support

Project financing involves complex transactions and requires the participation of several stakeholders. As a result, using the services of specialists and experts is necessary. It costs a lot to set up a powerful model for getting credit and running a firm. This expense might be compared to the extravagant and expensive fees that bankers and other specialists get to facilitate project financing.

Conclusion

In project finance, constraints limit the recourse of the lenders. As a result, in the scenario of a default, the creditors will have access to the project’s assets to secure its execution and enforce performance obligations.

In contrast to recourse finance, where the lenders have a complete claim to the customer’s assets or cash flows, project financing does not do so. Consequently, project finance requires individuals with good financial and pertinent technical expertise.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your report.

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Importance of Project Reports

If you need a bank loan to start your dream business, a project report is a necessary document.

What Is a Project Report?

A project report is a mandatory document that outlines different aspects of the business or startup project. It should contain the project’s details, feasibility, and financial requirements. Here comes the next question, why does someone need this?

Project reports are important tools for both project teams and stakeholders. Through these reports, we track the current progress of the project and compare it against the original plan. They can identify risks early on, and take corrective action. Reports estimate all costs of operations and possible profitability of the proposed project.

Here are the points that validate the Importance of the Project Report:
  • Project reports are an important source for managers and stakeholders, to monitor the current progress and measure against the original schedule.
  • It helps to predict the threats and develop proper steps to recover.
  • The report makes it easier to control the cost and budget apart from the budgeted cost.
  • It will be a source of information to respond to success, stagnation, team results, or quality of work.
  • The project report requires completeness and accuracy, ensures coverage of all dimensions of the project, and makes the data more viable.
  • It helps the project manager to deal with potential or upcoming risks during projects.
  • The report increases the amount of visibility into your projects and will give you full insight into how your project is performing 
  • It also helps to avail certain loans and funding from various banks, NBFC, Private Equity, Venture Capital funds, government schemes such as Mundra Loan, and Financial institutions.
  • It helps the entrepreneur to get an exact idea about the initial inputs required for the business.
  • Project Report is an important document for bank loans including a business plan, projected financials, viability study, technical analysis, etc., for availing of the loan.
Who can make it?

Getting a business loan is no longer a nightmare. Our expert team at Finline helps you craft a compelling project report in less than 10 minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your report.

Now there is nothing stopping you from starting your dream business. Begin your journey with Finline right away!

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CERSAI

CERSAI is India’s main online security interest registry company. It was primarily designed to prevent lending against equitable mortgage fraud, in which people took multiple loans on the same asset from different banks.

The Central Government, Public Sector Banks, and the National Housing Bank collectively, under Section 8 of the Companies Act, 2013, held a majority shareholding of 51% in the formation of the company. The CERSAI Portal is accessible to both financial institutions and the general public. However, the general public can only access information about equitable mortgages.

Some information about the CERSAI

Type – Public Sector

Headquarters – New Delhi

Industry – Financial Infrastructure

Founded – On March 11, 2011

Area Served – India

Products – Online Security Interest Registry

Owners – The Government of India, National Housing Banks, and Others

Key functions and objectives
  • The company’s purpose is to maintain and operate a registration system for the purpose of registering securitization transactions, asset reconstruction of financial assets, and the creation of security interests over property, as contemplated by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
  • CERSAI was established to keep a central registry of equitable mortgages or collateral. It includes information about the property used as collateral, the name of the financial institution that provided the credit, and the borrower’s contact information.
  • The CERSAI portal allows lenders (public sector banks and non-banking financial companies) to ascertain that the property for which they are disbursing the loan is not serving as collateral for a loan from another bank.
  • Even if the property serves as collateral elsewhere, banking institutions can assess whether the property’s value is adequate to grant another loan.
  • The CERSAI portal enables homebuyers to determine whether the property they intend to purchase is free of all liabilities and security interests.
  • The Factoring Act of 2012 changed the scope of the CERSAI in 2012. Through this act, the CERSAI began the registration of security interests created through factoring or account receivables.
  • In 2016, it expanded its scope. This amendment requires CERSAI to begin registering security interests created on movable and intangible assets such as book debt, hypothecation, and accounts receivable.
  • The CERSAI is tasked with registering all types of mortgages used in India.
The Ultimate Guide to When It Is Needed

In the absence of CERSAI (Cersai Login), even genuine buyers were unaware of the loans and liabilities associated with a property. It resulted in legal complications and hardships for buyers of such properties.

Prior to CERSAI, financial institutions had a difficult time learning about encumbrances on a property. Because of the fragmented registration mechanism, it was difficult to determine whether the property was mortgaged or not, and only the property owner had access to this information.

How can the CERSAI Portal assist homebuyers?

Prior to the passage of the Real Estate (Regulation and Development) Act in 2016, the options for property and real estate developer verification were limited. Under the guise of false promises and deceptive practices, scammers duped homebuyers.

However, now that the CERSAI portal has been launched, prospective homebuyers can check to see if the property they have shortlisted is free of any liabilities or has not been used as collateral for a loan. It not only saves homebuyers money but also prevents them from having to deal with time-consuming legal issues in the future.

Registration fees

For the registration of security interests, it charges a certain fee. The cost to register with CERSAI ranges from ₹50 to ₹100. However, the amount of money borrowed and applied to the property determines the fees. 

How does CERSAI Search work?

A prospective buyer can conduct a CERSAI search to be extra certain due to the rising incidence of using the same property as collateral for loans from various banks. A CERSAI search will list a property’s specifics and reveal whether it has been mortgaged against a loan.

CERSAI search 

One can perform a CERSAI search by logging into the CERSAI Portal and selecting the “Public Search” tab from the home page.

The following methods are available for the CERSAI search:

  • Asset-based research
  • Debtor-based research
  • AOR-based research
What is the threshold warning limit in CERSAI?

Depending on the anticipated number of transactions, entities will set a threshold limit for the balance in their CERSAI accounts. In the event that the balance falls below the threshold, the system will alert them. Transactions are permitted up until the account balance is NIL.

CERSAI registration process

Its registration process is fairly easy to complete and only requires a few steps.

  • The primary header bar contains entity registration
  • The following step is to complete the online registration form. The main selection header has the heading “Entity Registration” in it.
  • Make sure you have a Central KYC Record Registry or an electronic signature to finish the process (CKYCRR). This guarantees timely work and is safe during the pandemic era.
  • Now complete the form by entering the necessary data.
  • Print out all the forms, double-check the information, and have the designated signatory sign them.
  • After that, you must send these forms to the CERSAI office along with the aforementioned documents.

The Bombay High Court declares that, according to SARFAESI and the RDDB Act, when enforcing a security interest, secured creditors’ claims will take precedence over those of taxing and revenue authorities.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Also, our reports are accepted by all public and private sector banks working in India. Click to create your report.

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Project Finance and Corporate Finance

Project Finance and Corporate Finance are also referred to as Balance Sheet Financing. There are two financing models to fulfil the requirements of a business, both rely on debt and equity as sources of funds.

What is Corporate Finance?

 The objective of the Corporate Finance model is to ensure the optimal usage of the available capital and maximize the shareholders’ wealth. Corporate Finance is the financing model, to puts all its projects/ business segments under one roof and consolidates the cash flows. 

The Corporate Finance model actively shares the risks and rewards associated with the respective projects/segments. It particularly helps the entities having various projects with a similar risk profile. The success or failure of these projects affects the corporate balance sheet directly.

If the lenders experience a payment default, they can lay claim to company assets since they serve as collateral. The security offered to the lenders is generally common. On all the assets and cash flows of the business entity.

Similarly, a company that might need to reorganize following a bankruptcy filing could use corporate finance to gain access to capital or reorganize debt. Corporate executives also use this type of financing to add value for shareholders by improving operations and ultimately generating greater profits.

What is Project Finance?

Lenders offer project financing as a long-term, zero, or limited recourse financing solution to borrowers based on the rights, assets, and interests associated with the relevant project. As this scheme offers financial aid off the balance sheet, it does not affect the credit of the Government contracting authority or the shareholders. Since Project Financing shifts part of the risk associated with the project to the lenders, this financial plan is one of the most preferred options for private-sector companies.

With Project Financing, a company can arrange for a loan based on the cash flow generated at the end of a project while using the assets, rights, and interests of the concerned project as collateral. Whether it’s a long-term infrastructure project, public services initiative, or industrial endeavour, securing funds for the implementation and successful operation of the undertaking is a fundamental aspect of the entire process.

The repayment of this loan can be done using the cash flow generated once the project is complete instead of the balance sheets of the sponsors. If the borrower fails to comply with the terms of the loan, the lender has the right to take control of the project.

Key Features of Project Financing

Below mentioned are the key features of Project Financing:

  • Capital Intensive Financing Scheme: Project Financing is ideal for ventures requiring a huge amount of equity and debt, and is usually implemented in developing countries as it leads to the economic growth of the country. To ensure the project is against these risks, the project also has to pay expensive premiums.
  • Risk Allocation: Risks associated with the project are shifted towards the lender. Therefore, sponsors prefer to avail this financing scheme since it helps them mitigate some of the risks. On the other hand, lenders can receive a better credit margin with Project Financing.
  • Multiple Participants Applicable: As Project Financing often concerns a large-scale project, it is possible to allocate numerous parties to the project to take care of its various aspects. 
  • Asset Ownership is Decided After Project:  Once the project is completed, the project ownership goes to the concerned entity as determined by the terms of the loan.
  • Zero or Limited Recourse Financing Solution: The financial services company can opt for limited recourse from the sponsors if it deduces that the project might not be able to generate enough cash flow to repay the loan after completion.
  • Loan Repayment With Project Cash Flow: In Project Financing, the excess cash flow received by the project should be used to pay off the outstanding debt received by the borrower. Gradually paying off the debt will reduce the risk exposure of financial services companies.
  • Better Tax Treatment: The project /or the sponsors can receive the benefit of better tax treatment. Therefore, this financing solution is the preference of sponsors to receive funds for long-term projects.
  • Sponsor Credit Has No Impact on Project: While this long-term financing plan maximizes the leverage of a project, it also ensures that the credit standings of the sponsor have no negative impact on the project
Conclusion

Investors use project financing, a long-term, non-recourse, or limited recourse financing scheme, to fund massive projects. After completing the project, we use the project cash flow for repayment. This scheme offers financial aid off-balance sheet. Therefore, the credit of the shareholder and Government contracting authority does not get affected. This financial scheme offers a better credit margin to lenders while shifting some of the risk from the sponsors to the lenders.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you must have a well-crafted project report. We, at Finline will help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. All public and private sector banks working in India accept our project report. Click to create your report.

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What is Capital Budgeting?

The term “Capital Budgeting” refers to the idea that a corporation should make decisions regarding its resources in order to maximise earnings over the long term. Perhaps you’re curious as to what this phrase means and why it’s so important for businesses.

Let’s first quickly define what capital budgeting is.

What is capital budgeting?

When it comes to corporate finance, capital budgeting refers to the strategic planning used to assess whether an organisation’s protracted investments, such as modern equipment, regeneration of existing machinery, product innovations, and projects in research and development are worthwhile to subsidise with working capital through the company’s financing frameworks such as liability, retained earnings. It involves deciding how much money to set aside for important infrastructure, or investment, expenses. Enhancing the firm’s value to its shareholders is one of the overarching objectives, in line with the general approach in corporate finance.

Finline can help you with quick, straightforward, and accessible financial reports utilising our platform to help you grasp the complex business information or resources your company might need, even if you have no awareness of or experience with managing your finances or budgeting.

Now that we have a basic understanding of capital budgeting, let’s examine its relevance in today’s scenario.

The Relevance of Capital Budgeting
  • The creation of transparency and accuracy through capital budgeting is crucial. Any company that attempts to invest in a venture without fully comprehending the potential dangers and rewards will be viewed as unprofessional by its owners and shareholders.
  • Additionally, a company would likely have very little likelihood of thriving in the harsh business environment if it had no ability to assess the success of its investing selections.
  • Other than non-profits, companies are in operation to make money. To quantify the long-term financial and economic viability of any investment proposal, organisations can use the capital budgeting method.
Features of Capital Budgeting
  • Long-term outcome

Such choices affect the rate of a company’s growth and have long-term effects on future profitability. A wise choice like Finline might result in fantastic/beneficial results, while a poor one could threaten the firm’s very existence. Therefore, choices made during capital planning affect the company’s future.

  • Significant risk

A decision is made on the expected return. The risk involved in making such judgments increases as tastes, style, expertise, and technology change. Finline makes it simple for you to make decisions by assisting with the risk factors, benefits, and drawbacks of your investment.

  • Huge amount of money

Large sums of money are needed, yet sparing such sums is a challenge. Therefore, individuals must make decisions after careful consideration and study.

  • Unchangeable choice

Reversing a choice is extremely difficult since doing so would involve selling a valuable item.

  • Extremely challenging choice

A choice is made based on projected outcomes and unpredictability. Financial, social, and technical advancements now have an influence on future events.

  • Implications on a company’s future ability to compete

These choices influence the company’s business advantages since they significantly affect revenue and expense.

  • Effect on cost structure:

Due to this important choice, the organization is dedicated to fixed expenses like monitoring, coverage, rental, tax, etc. An investment not providing the expected profit would impact potential income.

The process behind Capital Budget
  • Creation of Ideas

The creation of sensible investment concepts is the application’s most crucial phase in capital budgeting.

  • Examining Specific Proposals

For every project, management must acquire data to estimate investment returns in order to assess its anticipated profitability. However, the acceptance or rejection of a capital investment depends on the investment’s forecasted future cash flows.

  • preparing the capital budget

Profitable initiatives must be prioritised by an organization based on the frequency of their cash flows, the assets that the organisation has allocated, and its overall business goals. Projects that individually seem viable might not be beneficial from a strategic standpoint. Due to the challenges with finances and other resources, it is crucial to prioritise and schedule initiatives.

  • Observing and carrying out a Post Audit

Management must monitor or keep track of all capital budgeting choices. It should make a comparison between actual and expected results and explain why expectations and performance differed. Therefore, a comprehensive post-audit is necessary to identify recurrent prediction flaws and subsequently improve business operations.

Frequently Asked Question

What Serves as Capital Budgeting’s Main Goal?

The main objective of capital planning is to locate businesses that will provide cash flows for a company that are greater than the contract sum.

How Do You Make a Decision Regarding Capital Budgeting?

Frequently, companies link the decision to extend their present activities through a new project to capital budgeting considerations. One such choice, for instance, would be to set up a new retail location.

About Finline!

Finline is an online platform for creating financial reports for getting bank loans and investments. It’s like ‘Canva’ but for financials. If you are an entrepreneur looking for a bank loan, you need to have a well-crafted project report. We, at Finline help you with that. Our team will help you create a powerful business plan in ten minutes. That too in your language. Our reports are accepted by all public and private sector banks working in India. Click to create your report.