The Changing Face of Lending in India | Small Business Loans by Fintech

Growing a small business can seem like a Herculean Effort. Between focusing on sales, providing customer service and managing inventory, a businessman can feel overwhelmed. In a competitive marketplace, every businessman is concerned about growing his business and keeping up with his competitors.

The biggest challenge faced by MSME’s (Micro, Small and Medium Enterprises) in India is the complex process of availing small business loans. There are various reasons for this.

India is largely an informal economy where a majority of the population is unbanked. Consequently, most of the small businessmen have been reliant on informal money lenders, friends and family for money, instead of small business loans from lenders.

There exists a wide gap between requirement of funds by small businesses and the availability of funds. Quite often, small businessmen are not aware of the intricacies of the banking system. They do not maintain financial documents or audited reports of their earnings and are thus, rendered ineligible for bank loans.

Large banks and established lenders of India are mostly focused on old and well known businesses when it comes to providing loans. Their lending model is designed to evaluate a large business by an exhaustive list of parameters.

Of late the government has been trying to address the issue of financial inclusion. The Aadhaar Card is a remarkable initiative in this direction as it authenticates the identity of an individual, thereby allowing them to enter the financial system. With reference to small businesses, the banking sector has realized the potential of small business loans and is now racing to meet this demand.

How the FinTech Sector has made it easy to avail Small Business Loans

The rise of FinTech has ushered in a new era for small business loans. You may wonder what FinTech is and what’s all the hype about? In short, FinTech is a technology based approach to finance.

For example, take lending – A FinTech lender will rely on algorithms and computer systems to perform credit analysis. Automated systems ensure that the entire loan application process is streamlined and efficient. There is no need for a loan applicant to fill out paperwork and finish a tedious application process. The officer conducting loan interviews has been replaced by a scorecard which finishes the credit evaluation in a few seconds.

How NBFCs are providing Small Business Loans

There are various Non-Banking Financial Companies in the FinTech Sector that exclusively provide small business loans. They are focused on building customer centric models that will make finance more accessible to small businesses. There are some reasons why NBFC’s are able to provide small business loans in such a hassle free manner.

NBFCs have done away with the complex application process and document submission. Their automated systems allow an applicant to complete a loan application online. Crucial documents like PAN Card and Aadhaar Card are required, to verify the personal identity of the applicant. Businessmen need no longer submit a long list of documents to prove that their business is eligible for loan. NBFC’s typically only ask for Income Tax Returns and Bank Statements for 2 years.

Keeping in mind their target customer, NBFCs offer collateral free small business loans. This has been a game changer as most small businessmen cannot offer collateral. While one may think that such a model is risky, NBFCs have adequate safeguards to ensure that their loan will not turn into a Non Performing Asset.

NBFCs collect exhaustive data on customers after obtaining their due consent. Identifying trends in this data allows them to determine risk and disburse loans accordingly. This new approach to lending has enabled NBFCs to disburse funds within a few days of submission of documents.

Types of Loans offered by NBFCs to Small Businesses

The various types of Small Business Loans offered by Non-Banking Finance Companies are;

Short Term Business Loan
SME & MSME Business Loan
Small Business Loans for Women
Unsecured Working Capital Loans
Unsecured Machinery Loan

Conclusion

As of now, the FinTech sector is seeing exponential growth. There is an upsurge in investment in this sector and quite a few NBFC’s have begun to offer small business loans. Their most popular offerings are SME capital loans and MSME capital loans. As of now, these small business loans are available in metropolitan cities and industrial areas. NBFCs plan to offer small business loans in Tier-2 cities as well in due course of time. The ease of access to small business loans is sure to spur economic growth and development in India.

This is a Guest post by Rahul of Ziploan.

About the Author

Rahul Setia works at Ziploan.in, RBI registered NBFC as AVP Digital Marketing. Rahul enjoys creating innovative marketing strategies and is an expert at website data analysis. He is passionate about blogging and frequently shares his extensive knowledge through guest posts on different portals. Rahul has done his bachelors in Information Technology from Gurgaon.

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(Image courtesy of anankkml at FreeDigitalPhotos.net) (Post first published on : 11-may-2018)