In spite of the collateral cover and underwriting process, several public and private banks are burdened with heavy NPAs. This has resulted in banks tightening their lending process and stipulating additional conditions for loan grant. In such a situation, SMEs find it difficult to obtain SME finance, given the insistence of additional collateral. The loan application process in banks is long drawn and time-consuming.
On the other side, the Indian economy is a growth engine of the world. Thus, there is significant growth and business opportunities in the SME space, which requires funding. The gap between the demand and supply of SME finance has given birth to the new age fintech lenders. The fintech players are the preferred choice for SME finance as they have removed all the shortfalls of lending to SMEs that was present in the traditional banking system. Some of the advantages that fintech lenders offer to SMEs are:
- SME focus loans: Fintech lenders are able to provide customized loan offerings to SMEs, suited to their specific business needs. This way the nosiness owners are able to completely focus on the business rather than being worried about financial problems of fundraising.
- Minimal documentation: Most banks and traditional financial channels insist on submission of extensive paperwork and documentation. Further, as part of the underwriting process, further documents may be demanded from time to time. Thus, the borrower has to make several visits to the physical premise of the bank to inquire about the loan status or submit additional papers. This is very cumbersome for the SME, who has to procure the relevant papers, endure a long waiting period and face uncertainty of loan approval. Thus, besides KYC documents and business-related documentation, there is no other paper required.
- Online application and processing: FinTech firms have a completely adopted online platform. The eligibility check is conducted via the website or the mobile application. This has enabled digital business loan application, upload of soft copies of documentation and online loan approval, loan amount disbursal. Further, the loan papers are signed digitally as well.
Throughout the process, a business owner can track his/her loan application status anytime by logging into the FinTech loan account.
- Quick disbursal of funds: Fintech lenders make extensive use of cutting edge, new age technologies like big data, cloud computing etc, combined with online and offline verification processes that save the valuable business time of the SME. This has enabled prompt loan processing and quick disbursal of funds to the registered bank account of the business owner, rather than issuing cheques or demand drafts.
- Zero hidden charges: Banks generally have several hidden costs that are deducted from the principal amount, leaving the small business owner with a smaller amount of funds than initially expected. However, Fintech lenders charge processing fees and other documentation charges that are declared upfront to the SME owner. This results in transparency and a cost advantage to the borrower.
- Cost savings: The cost savings realized from the use of technology is passed on by the Fintech lenders to the SME borrower.
- The Absence of collateral cover: This is the biggest advantage of an unsecured business loan from a Fintech lender is the lack of asset pledge. Hence business assets are protected in the event of a business low.
The biggest advantage is providing SME loans without collateral. This has provided a level playing field to SMEs to compete with big established players and MNCs. SMEs are known to be small business units without a significant asset pool. Hence they are unable to provide valuable assets to back a business loan. Thus, unsecured business loans from Fintech lenders are the best option for SMEs to obtain financial assistance.