Working tirelessly on a business project and then seeing it flourish is a delight that diligent entrepreneurs value highly. If your products or services have been well accepted in the market, your confidence grows in adding more time and money into the established venture. While devoting time is a personal quality, having adequate funds to buy quality equipment, paying talented staff and improving other aspects of business calls for a detailed planning process.
A business may have allocated a part of its revenue earnings to meet such expenditures, but when the growth plans are decisive and big, there may arise a need for funding from external sources. This is where short-term cash loans from external sources come to the aid of small and medium enterprises.
For a long time, applying for business loans meant collating piles of document to support the application, offering a valuable asset in the form of collateral to the bank and then waiting for a minimum of 3-4 weeks for approval. Besides, the response from the lending institution may not always be positive. It may refuse the grant on grounds of inadequate paperwork, dissatisfaction with collateral’s value or poor confidence in the creditworthiness of the applicant.
The Emergence of Digital Technology in the Financial Industry
Technology and innovation have brought about radical changes in the financial services sector. The FinTech ecosystem is the result of such significant changes, and it has simplified the access of businesses to short-term loans.
FinTech revolution in the finance domain has made it possible to apply for and receive short-term loans online. Customers in India – both individuals and businesses – have shown an unexpectedly quick rate of adoption to FinTech offerings. Although India’s growth wave in this sector may not yet be at a scale comparable to some global counterparts, it still measures well. This can be attributed to the presence of a technologically perceptive workforce. To save time, a huge number of transactions are completed online, and sending applications for small business loans has also become a digitalised process.
FinTech companies engage in external partnerships with banks, research institutions, technology experts, government bodies, industry advisors and market associations. They build a highly integrated network that includes skills, experience, technologies and assets of all entities for facilitating better financial services.
Getting a quick short-term loan from a FinTech company is a simple procedure. You visit the secure encrypted website of the lender, fill in the application form for the required amount and upload the minimum qualifying documents online. The application is largely reviewed by proprietary algorithms of the company and is processed within 48-72 hours. The essential calculations are made based on evolved decision sciences and predictive modelling.
As the criteria for evaluation of creditworthiness is less stringent than that followed by banks, a significant majority of the applicants receive the exact amount of funds they had applied for successfully. Creditworthiness is judged individually as per the nature of the enterprise. These short-term cash loans are generally granted for tenures of 1-3 years, and the loan amount may range between INR 3 lakhs and 50 lakhs.
Another attraction of borrowing from these digitally functioning non-banking financial companies (NBFCs) is that there is no prepayment charge involved. Therefore, if you wish to repay your debt early instead of paying in equated monthly instalments (EMIs), you can do so without crossing the outstanding amount and usual interest. The repayment options are flexible as well.
The loans offered by digitally-enabled NBFCs are mostly collateral-free. No asset needs to be mortgaged to the lending institution. These FinTech companies approve loans as per the repayment ability of their customers, and they do not ask them to pledge any security in the form of property, gold or investment portfolio. The documentation that is digitally uploaded is enough to prove the business’s creditworthiness.
On getting your short-term loan, you can use the capital for any business-related activity. These funds can help you buy new equipment or larger stocks of raw materials, make payments to suppliers or set up a branch in a new city. You can also use the money for new marketing campaigns. In comparison, banks usually issue loans only for specific or pre-specified purposes.
Do These Benefits Imply that FinTech Companies Pose a Threat to the Traditional Banking Set-up?
Start-ups and small & medium enterprises (SMEs) that are on the growth trajectory have started shifting from banks and traditional lending institutions to FinTech companies for funding requirements. The ease of getting a loan from these digitally oriented players of the finance industry makes them attractive to tech-savvy entrepreneurs. However, this does not imply that the credit activities of banks face a threat from the FinTech revolution. On the contrary, it complements the system that is still a significant part of the economy.
As per a recent article published in the Times of India online edition, two years of FinTech driven changes have helped banks grow by about 15-20%. Banks use FinTech organisations to qualify valued customers and offer expedient credit. The customised loan products and technology employed by these NBFCs are also helping banks to realise their goals.
The underlying idea behind financing an enterprise is customer centricity and incentivising the entrepreneurial efforts. Businesses that actively contribute to a country’s GDP and economic development, and have the potential to reach higher levels of growth must be given a chance to scale up through easily available credit. Banks, traditional NBFCs and FinTech firms can offer consolidated support here.
At global levels, FinTech lenders have radically redefined the credit industry by shifting the lending standards. A concept that had initially started with providing unsecured loans to individuals has now grown to include small businesses and retail trade in its ambit. A sustained commitment from the government, the FinTech lenders themselves and the industry as a whole is critical to allow this revolution to establish itself deeper into the financial system and contribute further to the growth of enterprising ventures.