Hidden Aspects You Should Know About Small Business Loans in India

The recent initiatives by the Indian Government such as Make in India have encouraged a spirit of entrepreneurship within the Indian economy. We see a lot of young businesses taking shape and the pace of setting up new enterprises is only going to accelerate in the near future. While it takes a toll on promoters to set up a new enterprise, a key challenge that they face during their growth journey is the lack of adequate business finance. Most of their small business loan requirements could be short-term in nature and not having access to sufficient business finance at the right time could lead to missed business opportunities.

Therefore, it is important for a growing economy like ours to provide structured small business loans to enterprises at nominal interest rates. It must be remembered that most small businesses do not have adequate assets to take secured small business loans from banks, so the role of lenders who provide unsecured business finance becomes important. There are quite a few Fintech companies that have taken shape over the last few years which specialise in providing unsecured small business loans. They provide innovative business finance products that are tailored to suit the needs of young enterprises. Also, since they understand the business finance needs of enterprises, they provide flexibility in the repayment of small business loans.

Small businesses are too focused on their day-to-day operations and seldom have the time to explore beyond traditional small business loan providers. Also, before applying for any kind of business finance, an enterprise should thoroughly evaluate its needs and compare the various capital loan options available. Many-a-time a small business might miss out on key aspects to consider before applying for a small business loan in India. Here we discuss such aspects in detail.

Credit rating of a small business

Most small or young businesses do not have a perfect credit history to qualify for a business loan in India. This hampers them from approaching banks and other traditional financial institutions for taking a small business loan in India. Such institutions demand collaterals as security for providing a business loan in India and also have a long checklist of documents required to be submitted by a small business. The new-age Fintech companies understand this challenge and also the fact that most small businesses might not have a well-established track record as far as capital loan borrowing is concerned. So, they look more at the revenue model of an organisation and how its revenue stream is poised to grow in future. If they feel that a capital loan will genuinely alleviate the cash flow issue and lead to more profitable growth in future, they are more than happy to lend. They offer a variety of small business loans in India, each designed to meet a specific need of a small business.

Unsecured loans from Fintech lenders

Banks and other traditional financial institutions still follow archaic rules and regulations while disbursing a capital loan to a small business. They have tedious processes right from loan application to the actual disbursal of small business loans. Most banks expect small businesses to have healthy collaterals before considering their business finance application. Also, they require small business owners to submit a huge set of financial documents to prove their financial worth. In today’s world, businesses work at a lightning pace and therefore need to take quick decisions. This is especially true of young businesses that work on new ideas and technologies. Therefore, to grab new opportunities, they can’t wait for business finance for far too long. The Fintech lenders understand this need for quick disbursal of business finance and use cutting-edge technology to work on applications for small business loans. You can apply for a business loan in India online or through a mobile app anytime and from anywhere. Just a basic set of financial documents needs to be uploaded. The small business loans are disbursed within a few days of getting approved.

Loans that vary with business need

No two businesses are alike and neither are their needs. That is why there are different types of small business loans available. In case a business is waiting to receive payments from large customers and is short on cash to pay its suppliers for raw materials, it could go for a quick working capital loan. Likewise, a business that is in expansion mode and needs to shift to bigger premises or hire more employees to serve customers could go for business finance that can be repaid over the next few months. Then there is online seller finance that is meant to help e-commerce companies stock up before the advent of a busy season. Supply Chain Finance could be used by small businesses with pending receivables from large corporates to take advances against those receivables. Similarly, Merchant Cash Advance is meant for merchants who receive payments from customers through POS machines. Based on their card transaction history, such merchants could get up to 200% of their monthly settlement value which can be repaid over subsequent months through a fixed percentage deduction from the total card payment receivables each month.

Flexibility offered by an unsecured capital loan

Traditional lenders such as banks offer secured loans as a percentage of the total value of the collateral pledged against that loan. However, unlike banks, Fintech lenders do not require collateral to be pledged and instead decide on the small business loan amount based on the business potential and credit worthiness. The guiding philosophy behind sanctioning of loans by such lenders is that the capital loan should support a business in times of need and aid its growth. They typically offer small business loans ranging from Rs 1 lakh to Rs 1 crore. The loan repayment conditions are flexible and a business can choose to increase the repayment amount when it has more funds available and likewise reduce the amount when there is a cash crunch or if funds are needed to be deployed elsewhere. There is no pre-closure penalty levied should you decide to repay the entire capital loan in one go.