There are several, widespread misconceptions prevalent amongst SMEs about getting a business loan. We shall try to debunk those fallacies and look at the features of the best unsecured business loans. Some common misconceptions people have about the processes involved in SME loans are:
1. There is no Funding provided to New or Small Business Units
This is a complete misconception that it is better for startups and small business units to approach venture capitalists or family members as the funding is certain. To avail business loans, one needs to validate several years of business operations. Further, the business loans are granted at high rates of interest to small business as the quantum of the loan being small is not very profitable for the financial institutions. However, this is not true. The advent of the fintech industry has enabled a small business unit with strong business performance to easily obtain a business loan.
2. Lenders insist on a perfect credit score
Historically, if one had a weak credit score, securing a business loan would be next to impossible. However, the growth of the fintech sector has changed that. Thus, a loan is granted based on an in-depth analysis of a host of factors. Many lenders would look into the turnover since inception, cash flow statement and other financial documents before determining the loan eligibility. A holistic understanding conveys a comprehensive picture of the business performance than a standalone credit score.
3. Approval and Disbursement is a time-consuming process
There is a fallacy that a business loan would take a long time that could run into months to get approval. This is outdated information. Fintech lenders, making extensive use of technology have facilitated online loan application with loan approval with 3-5 days. Further, the loan amount is directly credited to the registered bank account of the borrower.
4. Online lenders charge exorbitant rates
The unorganized money lenders would historically charge high interest rates as they were unregulated. Since the online fintech lending platform is relatively recent, many people who are wary of the new have a similar opinion of fintech lenders. This is not true. Fintech lenders have passed on the cost savings from technology to the borrower, with interest rates varying between 18%-24% on reducing basis. In fact, business owners who were turned down by the banking channels can obtain online business funding from fintech players.
5. Fintech lenders cater to failed business units, banks back the successful
There is a notion that successful business units can get bank finance, while the rejects of bank loans approach fintech lenders. This is not always true. Fintech lenders provide customized unsecured loan offerings for SMEs with no collateral requirement. This feature is convenient for small business units that are yet to build a considerable asset pool.
The simple procedure to follow to obtain a business loan is to apply online for an unsecured loan via the website portal or mobile application of the fintech lender and upload soft copies of the required documents. Then the fintech lender would carry out the evaluation of the loan proposal and approve the loan if it meets the eligibility criteria. The loan is then disbursed into the registered bank account of the borrower.
The expansion of the fintech digital lending platform has significantly boosted the external financing options of SMEs to help with their future expansion and development plans. Loans types like working capital loans, equipment financing and invoice discounting aid growing companies to tide over a cash crunch and support their business expansion plans. Thus, SMEs are able to obtain timely funds at optimal interest rates.