SMEs or the Small and Medium Enterprises are the backbone of Indian Economy, it is the SMEs and the MSMEs that employ the bulk of workforce in India and of course they are the biggest contributors to India’s GDP. Having said that there is a perennial problem that the SMEs in India have been facing since forever, the problem is of getting access to credit. As without the access to credit or the capital there are limitations to which a small business can grow. While, the small businesses face a huge gap when it comes to business loans and specially the business loans without collateral. Here is a quick guide to SME Business Loans in India which captures the various ways a small business can get access to business loans.
The Traditional lenders like Banks have always been giving business loan to the small businesses. However, they have not been able to plug the credit gap that the SMEs in India have been facing because of a few reasons. The first reason is the demand of collaterals, which means only the businesses who can pledge their home or work properties can get access to business loans, this leaves a huge population out as not everyone has owned properties. The second reason is the underwriting process, the traditional lenders mostly evaluate on collaterals and multiple documentations like income tax returns, which ultimately means the business transactions and business types are not considered.
NBFC or the Non-Banking Financial Company is an entity that is engaged in the business of loans and advances and there are several NBFCs who are working to providing the access to business loans to small businesses – SMEs and MSMEs. These NBFCs often do priority lending to specific sectors and have both standard business loans and business loans without collaterals. While, they do provide the access to credit, there are a few concerns which have kept the small businesses’ goal of getting access to timely credit incomplete. The prime concern is that of Application Process, NBFCs mostly have offline application process for business loans and want small businesses to visit them a few times to get their loans approved and the other concern is that of time taken to sanction a business loan, quite often is takes weeks or even months to complete a business loan application
Fintech or the financial technology is the new space that has emerged to plug the credit gaps that the SMEs and the MSMEs across India have been facing for the eons. Under Fintech, there are digital lenders that are focused of helping small businesses achieve their true potential by providing them with the timely access to business loans. The digital lenders have re imagined the entire process of proving business loans and here’s how they have changed the process:
- Application: The application process has been made absolutely simple, with small businesses only required to fill a quick online form with basic business details and KYC. Instead of days in filling the forms, it just takes a few minutes
- Underwriting: The method of evaluation is complete fresh, the digital lenders look at the business transactions the small businesses do and evaluate them on the basis of those transactions, they look at the digital trace of transactions they do, which could be the transactions made from the card swipe machines or the transactions made with the apps and aggregators. It is just the online connectivity with these partners or reading the bank statements via machines which gets this job done in real time
- Right Products: The digital lenders have custom products for each business which helps them get access to business loans without collaterals. These products are made as per the business type and cycle of that particular domain or industry.
- Flexibility: The digital lenders also offer a lot of flexibility when it comes to repayments, as the business loans are closely linked to business, even the repayments are connected to business transactions which helps small businesses to focus on their business without having to worry about managing their business loans.
And, out of all the digital lenders, one should look for the lender which has the best products and offerings for their business. The one digital lender that we would recommend is Indifi. Indifi has special products for businesses like Retail shops, travel agents, hotels, restaurants, e-commerce sellers, vendors of large companies and several others. They provide loans up to 50 Lacs and can provide approvals as quick as within 24 hours.