Innovation and technology have led to a radical change in India’s financial services segment. Many SMEs still head to traditional banking institutions for a loan. This is mainly due to the lack of awareness of available options.
Why Choose Online Loans for Small Businesses
Raising a loan for a small business from traditional financing institutions can prove be a highly tedious and stressful task.
It typically involves making multiple visits to the bank, submitting endless amount of paperwork and waiting for months for a response regarding the approval or rejection of the loan application.
Traditional financing institutions are apprehensive about approving loans for a new business or for the SME segment. Thus, they have stringent eligibility criteria and the requirement of collateral, making it very difficult for small businesses to secure loans.
Against this backdrop, SMEs and new businesses had no choice but to approach unorganized moneylenders to overcome their cash flow issues or to fund their growth. These moneylenders charged exorbitant interest rates, severely hitting the bottom line of the borrowing enterprises.
With advancements in technology, FinTech lenders entered the financial services segment, offering a plethora of options for business loans in India.
The country recorded a whopping $1.77 billion in FinTech investments between 2014 and 2015, according to figures released by Inc42’s FinTech Market Report.
Although these figures highlight the growth of India’s FinTech segment, there is room for phenomenal growth in the near future, says an article published by FICCI on February 9, 2017.
These FinTech firms are not only making collateral free loans available for small businesses, they are ensuring that the entire process of loan application, screening, approval and repayment is easy and fast.
Small and new businesses can now apply for a loan online, by filling up a simple form and uploading relevant documents. While the loan application process takes a few minutes, the approval comes through in a matter of days.
FinTech lenders have introduced new and innovative loans for small businesses that are more aligned with their requirements and have set repayment terms that these businesses can meet conveniently.
Ways to Secure the Best Online Loan
1) Get Your Business Finances in Order: It is important for new and small businesses to be organized about their finances. Having a good business plan in place and maintaining proper accounts would help you determine your loan requirements more accurately.
Securing excessive loan amounts would result in unnecessarily higher interest payments. On the other hand, securing too small a loan amount would not solve the liquidity problems that businesses often face.
Thus, a business owner should be clear about the financial position of the business, the working capital gap, the amount of funds required to be raised and for what duration.
Having the finances in order also helps when making a loan application. A potential lender can check whether a business has viable operations and has the potential to grow if the accounts and business plan are clear.
Therefore, being organized with the finances helps to get an online loan faster and at more appropriate terms.
2) Get All the Documents Ready: The application for an online loan can be highly convenient and quick, provided the applicant has digital copies of all relevant documents ready.
The loan application should be accompanied by copies of documents that prove the identity of a business, its financial statements and proof of taxes paid. These documents not only make the application process smoother, but also help avoid any kind of delay or rejection.
3) Maintain a Good Credit Score: Your business may be too small or too new to have a formal credit score.
In such situations, the credit score of the business owner or the main people managing the business comes in handy. A bad reputation or a poor credit score may hinder the chances of securing a loan for your new business.
You can improve your personal credit score by repaying personal loans on time, not delaying on making bill payments, including credit card payments and utility bills.
4) Choose the Right Lender: It’s important to research online before making a decision regarding the lender.
A good lender would have associations with credit card companies, point-of-sale service providers and online shopping sites. You can research about the credibility of the management team, as this would give you a good idea about the company.
5) Choose the Right Product: Research online to know all the features of the various products offered by the FinTech lender you have chosen.
Different financial products are suited for different business needs and models. For instance, if your business has a presence on online marketplaces, you can choose a product specifically for this.
In case most of the payments to your business are done via credit cards or point-of-sales machines, you can opt for a product that relates loan repayments to the receivables. Alternatively, a business can choose a product that offers a rolling credit facility.
6) Look for Hidden Charges and Fees: A good lender would provide absolute transparency into all fees and charges. You can search for relevant information on their website to ensure this.
Online loans have bridged the liquidity gap for small businesses. FinTech lenders have simplified the complete process by using alternate data, like tax information, Aadhar card details, bank statements, social profiles of businesses and their owners to determine creditworthiness.
While lenders are speeding up the process on their end, small businesses can also take the necessary steps to ensure a smooth loan application process.