Small Businesses are the soul of India, they are not just the mainstay of India’s GDP but also the largest employer and a true pulse of the nation. However, the same MSME segment is also the most credit deprived and often their small business loans get rejected for not falling in the prescribed norms. They need these business loans for working capital or to invest in their business, eventually their growth depends on these small business loans. While, the traditional lenders ask for collaterals and multiple documentations, the new age digital lenders have been helping the small businesses to get access to working capital loans in India. Here are the top factors that affect the business loan approval process.
A lot of times, the small businesses operate on cash or verbal assurances, which are not measurable for either the traditional lenders or for the new age lenders and that is the reason, the traditional lenders asked for collaterals to cover their underwriting risk. However, with the arrival for digital lenders and the governments initiatives around digital India, the scenario has changed. Today, small business loans can be availed using the digital footprints. The digital lenders analyze the creditworthiness looking at the digital footprints like analyzing the card swipe machine transactions for a retail shop to get a view on the nature of transactions and to know the business cycle. Similarly, other businesses like a Hotel or a Restaurant can be assessed on the basis of their transactions with the booking aggregators and so on. Thus, the digital footprints is today an essential element to achieve your business loan.
Lenders are looking for the patterns on which the business works, they idea is to understand how much a business is loan ready and what is their capacity to repay and in what tenure and to come to that conclusion they need to understand the business cycles. It also ensures that the small businesses get the right business loans, be it the working capital loans in India or the standard small business loans. A tourist hotel for example might need funds during its off peak season to add to its facilities likes setting up a bar or a conference room and the lender will have a clear view on the repayment possibilities and requirements which is based on their business cycle and which in turn is closely linked to their digital footprints.
A small business is mostly synonymous to their owners and the credit rating of the business or the owner plays a big role in the overall eligibility of the loan. The new age lenders as well as the traditional lenders are now looking at the credit rating to ensure they are not giving small business loans to those who have a trend of defaulting on loan repayments. Also the credit rating gives snapshot of the credit ability of the business. A lot of new age online businesses are running special campaigns to highlight the importance of credit rating and score for getting a small business loan.
The type of business is also an important criteria for getting the right loan product. A capital intensive business like that of manufacturing might need a term loan to increase its capacity, whereas a travel agency mostly needs the working capital loans in India to increase their business and get more customers. While different businesses have different needs for business loans. The lenders also qualify the businesses basis their business type and some business types are considered to be a better credit-able than others. Mostly, the businesses that deal with the bigger companies and are connected with the chain of payments are treated as better candidates for small business loans that the stand alone businesses.
While, the above are some of the key factors that affect the business loan approval process. The new age lenders like Indifi today have different loan products for different types of businesses depending on their business type, cycle and digital footprints. Thus, it becomes easier for these businesses to avail small business loans or the working capital loans in India and to make it simple, they even have a quick and simple online application process that enables the small business loans in India.