What is Assets Finance Company Registration?
In India, Assets Finance Company Registration is a company which finances the physical assets like automobiles, cars etc. Without prior registration with the Reserve Bank of India no company can carry business of asset finance. In case of no registration, the Reserve Bank of India can impose penalty or fine or can even prosecute them in a court of law. It is also known as vehicle finance company.
According to Reserve Bank of India, an Asset Finance Company is a financial institution whose principal business is the financing of physical assets supporting productive or economic activity such as automobiles, tractors, machines, generator sets, earth moving and material handling equipment and general purpose industrial machines.
Principal business for this purpose is defined as physical assets supporting economic activity and where income is not less than 60% of its total assets and total income respectively.
Procedure for Asset Finance Company Registration
In India, the procedure of registering an Assets Finance Company Registration is a little complex. The whole process of registering an AFC take months to complete as it involves permission of Reserve Bank of India.
Here is a procedure of registration in brief:
Company Registration
The first step is to register a company in India. It can be public or private, it depends upon the choice of promoters. Initially, company may be registered with any amount of capital.
Raise Authorized and Paid up Share Capital to two crores
After this, the next step is to raise the authorized share capital as well as paid up share capital up to two crores rupees. This could be done in the first step itself but it involves risk of rejection so it is recommended to do it after incorporation.
Deposit Amount of Rupees Two Crore in Fixed Deposit and Obtain Certificate
The next step is to deposit the sum of Rs.2 crore in fixed deposit and obtain a certificate of no lien from the bank.
Get all the Certified Copies and Complete the Checklist for RBI Registration
After this, the next step is to complete the requirements for the RBI registration.
Here are the following requirements for Assets Finance Company Registration
- Certified Copy of Certificate of Registration
- Certified copy of an extract of the main object clause in the MOA relating to the financial business.
- Certified Copy of the Board resolution
- A copy of Fixed deposit receipt & bankers certificate of lien indicating balances in support of Net Owned Funds.
- Bankers Report for Applicant Company/ group companies.
Fill online application
After this, an online application shall be filed for NBFC registration as an Asset Finance Company (AFC). Once the online application is filed, the company gets a Company Application Reference Number.
Submit the Hard Copy to the Regional Office of Reserve Bank of India (RBI) office
The next step after the online application is filed, is to submit the hard copy along with all the necessary documents to the regional office of a Reserve Bank of India.
Required Documents
For the purpose of registering NBFC as a private limited company, there is a requirement of at least two persons to start with.
Here are the following documents required for the AFC registration:
- Copy of PAN
- Identity Proof (Driving License, Passport, Aadhar Card, Voter ID)
- Address Proof (Bank Statement, electricity bill, Mobile Bill, Telephone Bill)
- Passport Size photograph
- Rent agreement/ownership document
- Electricity bill
- A copy of No Objection Certificate (NOC) from the owner.
- CIBIL records of all shareholder (more than 10% share in Company) and directors
- Education & Experience proof of promotors
- Fixed deposit of Rs. 2 Cr for the Purpose of NOF requirement
- Net worth certificate of directors and shareholders
Frequently Asked Questions
If anyone is interested in incorporating an asset finance company, then the documents required for the Asset Finance Company Registration are as follows –
- Copy of the PAN Card
- ID Proof (in the form of Aadhaar Card, Passport, Driving License, Voter ID)
- Address Proof (in the form of a Bank Statement, Telephone Bill, Mobile Bill, electricity bill)
- Passport-sized photo
- Ownership documents or the rent agreement
- Electricity bill
- Copy of No-Objection Certificate (NOC) issued by the landlord.
Further, the procedure for incorporating an Asset Finance Company includes –
- Step 1 – Register a Company – The first and foremost step to incorporate an Asset Finance Company is to register the Company under the Companies Act, 2013. The company registered could be either a public or a private company, as per the choice of the founders.
- Step 2 – Raise Authorized and Paid-up Capital up to two Crores – The next step in this process is to raise the authorized and paid-up capital up to rupees two crores.
- Step 3 – Deposit Rupees Two Crore in an FD and obtain Certificate – After raising the required capital amount, the next step involves the deposit of Rs 2 crore in an FD (Fixed Deposit) and then obtain a certificate of no lien from the concerned bank.
- Step 4 – Get all the certified Copies –Once, the applicant is done with step 3, the next step requires the completion of the checklist needed for RBI registration. The checklist for the Asset Finance Company Registration is as follows –
- Certified Copies of the Certificate of Registration
- Certified copies of the extract of the object clause provided in the company’s MOA (Memorandum of Association) concerning the financial business.
- Copy of Board resolution
- A copy of the fixed deposit receipt and the bankers’ certificate of lien indicating balances in support of the Net Owned Funds (NOF).
- Bankers Report for both the Applicant and group companies
- Step 5 – Fill online application –In the next step, the applicant is required to fill the online application for obtaining NBFC registration as an AFC (Asset Finance Company). Once the online application is duly filed, the company obtains a CARN (Company Application Reference Number).
- Step 6 -Submit the Hard Copy to the RBI Regional Office – Once the concerned online application is duly filed, the next step involves the submission of the hard copy to the RBI’s (Reserve Bank of India) Regional Office together with all the necessary and supporting documents.
Asset Finance Company is most often used in those cases where a borrower requires a short-term cash loan or a working capital. In most of the cases, the borrowing company using the option of asset financing pledges its accounts receivable; On the other hand, the use of the inventory assets in the borrowing process is not uncommon. Further, Asset Financing Company allows a company to acquire a loan by pledging balance sheet assets. Furthermore, the Asset financing is normally used to cover a short-term requirement for working capital.
Nowadays several companies prefer to use the option of Asset Financing instead of traditional financing, as the financing is done on the basis of the assets themselves instead of the bank’s perception of the company’s creditworthiness and future business prospects.
| Points of Difference | Non Banking Financial Corporation | Banks |
|---|---|---|
| Act of Regulations |
NBFCs are regulated and administered by the Companies Act, 2013 |
Banks are regulated and administered by the Banking Regulation Act, 1949 |
| Demand Deposits |
NBFCs cannot accept demand deposits |
Banks can easily accept demand deposit |
| Drawing of a Cheque |
NBFCs cannot issue or draw cheques on its own |
Banks can easily issue or draw cheques |
| Deposit Insurance Facility |
This facility is not available for the NBFC depositors |
This facility is available for the Bankers |
| Asset Restructuring |
NBFCs are allowed to provide service of Asset Restructuring |
Banks are not allowed to provide the service of Asset Restructuring |
| Maintenance of Reserve Ratios |
For NBFCs maintaining Reserve Ratio is not compulsory |
It is compulsory for the Banks to maintain Reserve Ratio |
| Loan Sanction |
Easier and Faster |
Comparatively Stringent in Nature |
| Product Offering |
Major Property Loans |
All types of Loans |
While it is true that a generous credit line along with a team of investors can make the starting of a company easier and not having money is no excuse. This is possible only if the concerned individual is confident that he or she has that product or service which people want. Hence, never allow any shortage of capital to dissuade you from your business goals.
By following the listed steps, one can easily bootstrap his or her way to a successful business –
- Make use of services in order to generate cash flow and then fund a product-based business
- Make use of every coming opportunity
- Get creative in approach as funding sources are available everywhere
- Use currently available resources in a new way
- Get a Credit Line
- Use an Incubator
- Find an Accelerator
- Crowdfund
Differentiate Yourself by using small things to make a big difference
First, the applicant is required to incorporate a company and get it registered under the provisions of the Companies Act, 2013. But, for stating banking activities, the applicant is required to a obtain license from the Reserve Bank of India. Following listed are the pre-conditions which are required to be fulfilled before obtaining a license from RBI –
- The company must have a minimum paid-up capital of Rs 200 crore.
- Then, in addition to this, anothe 300 crores of Authorized Capitalis required to be added, once the company starts its operations.
- So, in total, an applicant has required 500 croresof money in order to start a bank. This is either brought by way of shareholders’ equity or by issuing bonds and debentures etc.
- Once the requirement of capital is fulfilled, the bank can start its operations like accepting deposits and giving out loans.
- The deposits accepted can be eithe in the form of Demand Depositso Time Deposits. It is significant to note that these deposits are acting as liabilities to the banks because they are required to be paid back to the customer along with interest.
- The Loans advanced by the bank to the customers are considered as assets for the banks, as they get their money along with interest.
- Now, once the bank has started getting Deposits as Net Demand and Time Liabilities, a part of it should be stocked in an account with the RBI (Reserve Bank of India). This is known as the Cash Reserve Ratio.
- And for the bank’s own safety, liquidity is required to be maintained in the form of deposits such as cash, gold, government-securities, which are to stock in someplace safe places. This is known as the Statutory Liquidity Ratio.
- Now the bank can finally start its lending process.
- Now, as pe the Basel-3Norms, the banks are required to have a minimum Capital Adequacy Ratio, according to its Risk-weighted Assets. This should be around 10 per cent depending on various factors such as the Tier-1, Tier-2 Capital or NBFC etc.
- After this, the Bank is required to ensure that at least 25 per centof its branches are in non-urban areas.
- Also, the banks are required to ensure that at least 40 per centof its total lending goes to the Priority Sector such as the Agriculture, education, SHGs etc.
- If all of this is duly completed, then the bank can be rightly be called as aScheduled Commercial Bank, and it would be regulated and governed by the provisions of the Banking Regulations Act, 1949 and the Reserve Bank of India Act, 1934.
Cash advance loans business provides applicants with instant access to money during the time of any emergency. This is a profitable business, and it is ideal for anyone who is looking to start his or her own company. Even though cash advance companies constantly write loans, and they make money on the interest paid by the applicants. Before choosing to initiate a cash loan company, it is necessary to familiarize yourself with the process involved.
Steps involved in the Process of starting a Cash Advance Loan Business
- Purchase a cash advance franchise
- Research about the laws related to Cash Advance Company
- Create a Business Plan
- Check Your Credit Score
- Apply for a Loan
- Draft a Contract
- Choose the Appropriate Business Location
Current assets of an enterprise may be financed either by way of short-term sources or long-term sources or by the combination of both. Further, the main sources making up long-term financing are shares, debentures, and debts both from banks and financial institutions. Furthermore, the long term source of finance gives support for a small portion of current assets requirements which are known as the working capital margin.
In contrast, Short-term financing of the current assets comprises of the sources of short-term credit, which an enterprise is mostly needed to arrange in advance. Further, commercial papers, Short-term bank loans etc. are a few of its components.
In total, there are three approaches for financing current assets that are commonly used. These approaches are
- Matching Approach
- Conservative Approach
- Aggressive Approach
