The cash flow of most CAs and tax consultants, who have their own firm or practice, is very uneven. It is a very common practice for the clients to not pay on time. But you still have to pay your employees’ salaries, office rent, and other expenses on time. This can often lead to major cash flow problems.
Although most of the consultancy firms in India are moderately profitable, they still suffer from cash flow problems as their cash inflow is uneven. It is this cash flow problem that a line of credit can help you overcome.
What is a Line of Credit?
A line of credit is a special feature of CA Flexi Loans/ Tax Consultant Flexi Loan which grants you a credit line, from which you can withdraw and repay funds as per your needs, as many times as you need.
You can use the funds for any purpose, and can also part-prepay back the funds when you have the resources to do so. The lender will charge interest only for the amount which was utilized and only for the duration for which the amount was used.
Practical working of a Line of Credit
For eg.: Mr. A is a Chartered Accountant who intends to expand his services and therefore hires more employees. He also rents a bigger office. With this expansion, he is able to get several new clients and his practice starts growing very fast.
However, as per the terms of his agreement with his new clients – they will pay only after 3 months of providing the service. But his employees and landlord will ask for salary and rent at the end of each. This will create a cash flow problem for Mr. A and he will have to pay these expenses from his own pocket.
To add to his financial distress, he also makes some payments on behalf of a client and the client agrees to reimburse the same. However, the client takes some time in making these reimbursements. As a result of this, Mr. A’s finances worsen, and he finds himself in urgent need of cash to keep his practice running.
So he approaches a lender, who opens a new loan account for him and sanctions a line of credit with a credit line of Rs. 20 lakh. Mr. A is free to use this money at any time, for any purpose.
However, Mr. A only uses Rs. 5 lakh to pay employee salaries and office rent. He repays the same after 3 months when he receives his consultancy fees from all his new clients.
The interest that Mr. A pays is charged only on Rs. 5 lakh for a period of 3 months. It is not charged on the entire credit line of Rs. 20 lakh.
Sanctioning a line of credit is a one-time process. Once approved, Mr. A can use it in the future, as many times as he needs to. So if Mr. A again needs Rs. 2 lakh after 6 months, he will not have to go to the lender or file extra documentation. He will just have to withdraw Rs. 2 lakh from his credit line, and transfer it directly to his bank account. This usually takes about 2 hours to be processed.
Moreover, there is no limit on the maximum number of times Mr. A can withdraw funds from this account, as long as he stays within the credit limit.
As Mr. A now has a financial cushion to rely on, he can focus on getting more business, hiring more employees, having a better office, and offering better facilities to his clients. These things will, in turn, lead to more clients and better services which would increase the overall profitability of his practice.
Benefits of Line of Credit for CAs and Tax Consultants
Do all lenders offer a Line of Credit?
Yes, many lenders offer loans with a line of credit facility. However, most banks are very conservative in approving such loans. They ask for many documents and collateral, due to which many people prefer not to take a line of credit from a bank.
Instead people prefer to take a line of credit from NBFCs like Bajaj Finserv, which provides CA Flexi Loans/ Tax Consultant Loan with a line of credit facility without collateral, within 24 hours, at very nominal rates.
The CA Loan and the Tax Consultant Loan (Business Loan) which Bajaj Finserv is giving is structured in the form of a line of credit. You will get a credit line and interest will be charged only on the amount you utilise. Moreover, you will be allowed to withdraw and repay these funds at any time without taking approval again and again.
CAs can apply for a CA Loan (in the form of a Line of Credit) from the following links: –
Tax consultants can also apply for a loan (in the form of Line of Credit) through the following links: –
- Apply online for a Tax Consultant Loan (Line of Credit)
- FAQs regarding Tax Consultant Loan (Line of Credit)
Should you opt for a Line of Credit?
The main USP of a line of credit is its built-in-flexibility that lets you use any amount at any time, and repay the funds when you have extra money in hand. Availing the benefits of a line of credit is a very good option for CAs and tax consultants like you, as your cash flow can be very uneven, especially if you are in the process of growing your practice.
In such situations, a line of credit provides financial stability and helps you purchase resources and service more clients, leading to a better, more profitable business in the long run.
A lot of CA’s and Tax Experts opt for such loans as it solves their Cash flow problems without hampering their brand name.