How the Lending Market’s Digitisation is Transforming SMEs

Updated on: 03 Jan 2024 // 3 min read // Business Loans
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SMEs (Small and Medium-sized Enterprises) in India are a major contributor to the national GDP. These small and medium-sized enterprises offer employment to about 117.1 million people across India and contribute 37% of the total manufacturing output in the country. These figures emphasise the importance of SMEs to the Indian economy. However, even though these small and mid-sized businesses have a significant role to play in the nation’s economy, they have to contend with lack of funds and don’t have the financial means to work in a continually fluctuating economic environment.

Meeting Funding Needs

Traditional lending institutions often view SMEs as high-risk borrowers and hence, they impose many restrictions and limitations on these businesses when they approach them to spply for a Business Loan. Therefore, this is the reason SMEs get attracted to the unorganised lending sector to meet their capital needs. They are not averse to taking a Business Loan and paying high rates of interest to keep their operations going. Thanks to the digital transformation that is taking place in the lending sector, SMEs now have access to more pocket-friendly lending options.

Digital Lending and Its Effect on SMEs

India is witnessing an increase in financial technology companies. These online companies offer non-banking financial services to SMEs. They transcend geographic boundaries and provide small and medium-sized businesses access to competitive business loans and lines of credit. Fintechs have disrupted the lending market with their state-of-the-art technologies. Today, a borrower can apply for a loan using a mobile app and the entire process of approval and disbursal has become quick and hassle-free.

It is necessary to note that digital lending institutions are available round the clock. Hence, whether it is an entrepreneur looking for loans to start a business or an SME trying to get capital infusion for upgrade and expansion, digital lending institutions are making sure they provide a one-stop solution to borrowers.

Online lending has also made borrowing more affordable. These fintechs do not have overheads that brick and mortar lenders and banks have. Hence, they pass on the savings to customers by offering them lower interest rates. Furthermore, the entire process of applying and getting loans is transparent, safe and completely paperless. As a result, it is spurring the growth of feature-rich online lending platforms that are catering to the needs of an under-served segment of the Indian economy.

Catering to Bootstrapped Businesses

There is a huge demand for financial products among the different segments of the Indian economy. As a result, fintech are making these products available. Today, it has become easier than ever for SMEs as well as other businesses to get Credit Cards, lines of credit, Personal Loans, and consumer durable loans.

The unsecured lending industry, which now has a presence online, is growing at a tremendous rate. Currently, it is experiencing annual growth of 20%, and this growth is challenging the traditional lending industry that is trying to keep up with the offers that SMEs and other borrowers can avail online.

The online lending industry is making use of the latest technologies, including automation and artificial intelligence. Cash-starved businesses can now turn online to get quick Business Loans and Personal Loans with minimal documentation. The ease, convenience, and flexible repayment options are the biggest reasons for the growth of digital lending markets. Prospective borrowers can apply for a Business Loan using mobile apps, chatbots, and web interfaces from anywhere and at any time.

The innovative business models coupled with digitization is helping non-banking financial companies to grow by leaps and bounds while traditional financial companies face obstacle due to mounting debt and limited ability to extend credit to the SME sector.