Business loan

Finding Capital to Look For If Banks Deny Your Small Business Loan Application – Rohit Arora.


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Non-bank lenders have reappeared as a viable source of capital for small business owners, including women-owned businesses, as they generally tend to focus less on credit scores and more on the financial health of the business. borrower looking for financing.

Access to formal finance is a key constraint for the growth of small businesses in all economies – a problem that has been further exacerbated by the COVID-19 pandemic. Even as we navigate the new normal, small business loan approval rates for banks are still half of what they were before COVID. Studies have shown that for MSMEs around the world, access to finance is the most important challenge for their growth. When you look at the Indian scenario, MSMEs make up around 99% of all businesses, or around 63 million MSMEs in various industries and geographic locations. While adequate finance for MSMEs has been identified as a priority for India’s economic goals over the years, access to finance remains a challenge, despite improving financial structures.

Micro and small enterprises are currently facing a huge financing gap as they generally find it more difficult to obtain credit from formal financial institutions such as banks. This is mainly due to the asymmetry of information as well as the lack of credit history and formal documentation, which further leads to the reluctance of lenders to offer financing options to these borrowers. Most often, even if they do manage to secure funding, the approval times are quite long and usually require material collateral such as movable property, etc. While the pandemic has of course affected industries of all sizes, SMEs have been the most vulnerable. Growth in credit to micro and small industries fell from around 1.7% a year ago to 0.5% in March 2021, according to RBI data. Despite the fact that there is assistance, provided through several central and government programs, obtaining credit from banks remains a major concern for MSMEs, as the rejection rate of bank loans remains quite high. .

While large banks remain relatively cautious in lending to small businesses, small banks and other lenders have the potential to gain market share and relieve small businesses. Non-bank lenders have reappeared as a viable source of capital for small business owners, including women-owned businesses, as they generally tend to focus less on credit scores and more on the financial health of the business. borrower looking for financing.

Alternative lenders today offer their clients business loans tailored to the specific needs of a new business or start-up. Providing your business with the opportunity to grow and giving it the competitive edge it needs to be successful in today’s world, alternative financing is the best way to go when your loan application has been turned down by your bank. In fact, alternative financing could prove to be a more lucrative business for you in the following ways:

Faster loan processing and disbursement: Faster processing means you’ll get credit for your business faster, allowing you to explore new opportunities as they arise. Receiving a business loan in a timely manner can increase your marketing potential, increase your operations, and increase your profit margins over time.

No (or minimum) guarantee: Since these business loans are usually unsecured, you run the risk of losing valuable assets or giving collateral, such as stocks or corporate investments. Therefore, a business loan from an NBFC allows you to preserve your property while providing the funds necessary to grow your business.

Rationalize your cash flow: You can increase your window of opportunity by providing both capital and time to streamline your cash flow and enter profitable territory. Business loans from digital lenders can help you strike a balance between your business fund and business equity fund by providing an investment that can be repaid in installments.

Improve your credit score: A business loan from an NBFC is one of the best ways to improve your business credit score because loans are reported to all credit bureaus. This becomes extremely beneficial for companies that have experienced a drop in credit ratings due to volatile market conditions.

When financial institutions become too selective and prudent in their decision-making for small businesses, significant inefficiencies arise in the system. Alternative loans can revitalize MSME financing using digital tools and cash flow based loans. Therefore, for companies whose commercial loan applications have been rejected by banks, NBFCs are a great way to access capital. The key here is not to be confined to just one type of lender, especially if approval rates are low. It’s best that you do your research and research the best funding opportunities you can find.

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