Rajdeep runs a small publishing house. He prints IT-related magazines and journals and has a limited online presence. With the changes in technology and customer demands, he needs to transform his business model not only to reach out to more customers, but also tokeep his existing clientele intact. For carrying this out, Rajdeep needs an SME loan. His current revenue streams are dwindlingin spite of there being enough demand for his publications. If he does notattempt to transform his business model, there is a possibility that the existing revenue streams may abate further.
Rajdeep runs his office from rented premises and has few assets that he could provide as collateral to secure a small business loan from banks orother traditional non-banking finance companies (NBFC). He had once taken an SME loan from a local moneylender, but does not want to re-enter that trap as it had put a lot of strain on his cashflow. However, he does need a small business loan urgently, and unless he is able to access funds over the next few months, he may have to face tough decisions regarding the future of his company.
So, what canhe and scoresof SMEs who arein a similar situation do? SME businesses in India hold a great deal of potential for growth and collectively they provide employment to crores of Indians. However, due to transformation in business models and lack of adequate SME loans to adapt to the changed scenario, many are forced to die away.
This need not be true any longer. The last few years have seen the influx of newage FinTech companies that seek to address the challenges faced by businesses such as the one owned by Rajdeep. Such lenders use the latest analytic methodssuch as Big Data and Decision Sciencesto analyse the small business loan requirements of SMEs. More importantly, they hold a small business’ potential and its business receivables as more indicative of its robustness than the value of assets owned by it. Getting an SME loan from such lenders is far easier as compared to banks. Besides, they also offer innovative loan products for SME business in India.
Now that you have more avenues to get SME loans from, there are certain salient points that SMEs should work on to ensure they get the best deal on a small business loan in India. Let us discuss a few:
- Be organised and keep your documents in order: One of the first things a lender would want to check is the health of your business. This can be proved through several sets of financial documents. Therefore, it is prudent to maintain a proper record of your business receivables, both past and future, tax statements for preceding months, identify proofs, previous SME loan statements, upcoming business projects and your future business prospects. It is better to keep a soft copy of all such documents, as most newage lending companies have digitised their small business loan application process. Also, not being able produce the relevant documents or missing certain key documents may create a bad impression in the lender’s mind and impact your chances of securing an SME loan.
- Maintain a healthy credit profile, always: It is understood that a business with a good credit score appears healthy to a lender, the belief reinforced by a similar credit history of the SME owner. In addition, a good credit history is built over a period through proper servicing of small business loans. So, ensure you always take an SME loan for the right amount and pay it as per schedule. Also, continue taking small business loans for your needs, as a business with a good track record of repaying loans is likely to benefit more in future as compared to one that has hardly ever applied for an SME loan. Monitor your credit score regularly and take remedial measures if required.
- Have a concrete business plan in place: You should be clear about your future business goals and must be able to present them forthright in front of the lender. For instance, if you have accounts receivables from large customers but you expect a delay in receiving payments from them, and still need the small business loan to meet urgent working capital requirements, state that upfront. Similarly, if you sell online and there is a major business opportunity coming up for which you need an SME loan, approach a lender stating the exact amount of loan required. Convince the lender about your business prospects going forward and about your ability to repay as well.
- Estimate your need for funds correctly: A business owner should accurately calculate his small business loan requirements using mathematical tools and should avoid overestimating or underestimating his SME loan Unsecured loans come at a higher interest rate than secured loans, and therefore seeking more than what is required would unnecessarily add to your business costs. On the contrary, seeking less than what is required will not fulfil the business need and prove to be a waste of effort and resources.
- Choosing the right business loan product:You are spoilt for choiceswhen it comes to loan products these days. New age lenders such as FinTech companies have designed loan products that vary with specific business need. For instance, term finance is a great short-term loan product that can be availed for typically a year and at the most competitive rates. Likewise, businesses that are awaiting invoice payments from large customers could opt for supply chain finance, where unsecured loans are provided against such invoice receivables. Such a loan can even be paid back in a single instalment once the payment arrives. A merchant who sells aggressively through e-commerce marketplaces could go for online seller finance and utilise the funds to expand theirbusiness. Merchant cash advance is another product that caters exclusively to those merchants who receive payments through POSmachines. Such merchants could get a lumpsum amount upfront and pay it back as a percentage of their revenue from card payments each month.
Small businesses need not depend on banks alone to fulfil their funding requirement and should actively look out for alternate sources of finance. Newage FinTech lenders use the latest technologies to analyse their needs and are more likely to offer loans on flexibleterms as compared to traditional loan providers.