Fintech lenders extend unsecured business fundingwithout the requirement to pledge a personal or business asset as collateral. These small business loans are obtained based on the evaluation of the financial performance of the business unit. We shall now discuss broadly the terms that are associated with unsecured business loans:
- Collateral: Smallbusiness loans from fintech lenders provide financial assistance to diverse SMEs, such as B2B service providers, manufacturers, traders, or distributors. Fintech companies extend collateral free unsecured, short term business loans. Hence there is no lien on any of the business assets which are completely protected even in the event of a loan default. This is a big relief to the small business owner who is gradually building the asset base of his fledgling business. Further, the loan amount is not restricted by the value of the asset mortgaged as is the case in banks. The business is independently evaluated on its financial strength i.e. cash flows and receivable, allowing small business units with low operating vintage to grow. In unsecured business loans, there is no need for a 3rd party guarantee either. Since no collateral is hypothecated to the lender, there is no scope of property seizure.
- Interest Rates: Fintech lenders offer competitive rates compared to unorganized lenders and banks. This is because of savings on processes which are completely tech-driven. This saves considerable time and eliminates the hassles of paperwork. The interest rates vary between products and range from 18-24% on reducing the rate of interest.
- Loan amount not restricted to the value of the underlying asset
This is a huge plus as far as SME loans without collateral are concerned. Unlike loans extended by banks, where the loan amount is a certain percent of the underlying asset value, there is no such clause in loans from NBFCs. Hence one can obtain the loan amount as per business requirement, with no restrictive condition.
- Tenure: Fintech companies extend short term working capital loans and long tenure term loans for periods ranging from 6 months to 36 months.
- Utilization of the loan amount: The business loans can be availed for the following business purposes: Balance transfer, loan consolidation, working capital requirement, commercial expansion or addition of branches, offices etc.Any other business expansion plan. Some examples include:
- Lease bigger office premises or renovation
- Purchase, lease or repair of machinery and equipment
- Technology upgradation
- Purchase of inventory
- Hiring of skilled seasonal employees
- Purchase of raw material for bulk orders
- Capex plans
- Scaling up operations to service big contracts
- Loan process: In small business units, time is of utmost essence, when it comes to financing. Fintech companies with their flexible lending norms are best suited for expansion of small business units. Digital lending channels are capitalizing on the entrepreneurship trend and providing instant small business loansto small business units. The loan process is simplified and involves the following steps:
- Online, paperless application or through an empaneled agent
- Due diligence on the application and decision
- Disbursement of a loan amount
The loan approval process, post submission of documents can be completed within a week. The hassle-free, and customer-friendly documentation process is followed up with promptloan disbursal to borrowers. For loan amounts, less than Rs 10 lakhs, the sanction is almost instant on uploading the relevant documents. The business loan application and approval process is entirely online, without the hassles of extensive paperwork and cumbersome documentation.
- ID tracking: The applicant is provided a unique ID, whereby one can track the status of the loan application process.
- Credit to the bank account: Post-approval, the loan amount is directly credited into the registered bank account.
- E-sign facility: Further, there is a provision to digitally sign the loan agreement papers, which are sent to the email of the applicant and the verification is completed by an AADHAR based OTP sent to one’s registered mobile number.
- The eligibility criteria remain as follows:
- Turnover limit: Most NBFCs mandate a minimum turnover of Rs 40 lakhs.
- Vintage: Many lenders insist on an operational period of at least 3 years.
- GST compliance: The SME should be GST compliant
- Income tax Returns of the Business owner: NBFCs collect the IT returns filed in the individual capacity of the business owner.
- Age limit of the loan applicant: The loan applicant age group should range from 21 -65 years i.e. the working age group.
- Business structure: The operating structure of the business, whether proprietorship concern, partnership firm, private limited or public limited company