7 Things You Must Know Before Applying For Small Business Loans With A Poor Credit Score
Cash crunch is the one thing common to almost all SMEs. The need for capital drives SMEs to apply for business loans with traditional finance institutions or banks, which, as a matter of fact, do not usually like giving out small loans. Even if they do, their stringent eligibility criteria include the need for a good credit score and assets that can be put up as collateral. These are the two criteria that hurt the chances of getting a SME loans in India for most SMEs. Banks usually take around 2-3 months just to process the application and to inform the business whether it has been approved or rejected. The immediate cash needs of SMEs, therefore, compel them to look for alternate means of financing in the hope of quick approval and cash disbursement.
However, this acts against the SMEs, where traditional banks adopt a method called hard credit enquiry to determine the borrower’s creditworthiness, before extending a loan to them. Business owners or the main managing person(s) might have a poor personal credit score, which could then hurt the chances of their application being approved. Things don’t end here, since whenever a hard enquiry is made on an SME owner, their CIBIL score is impacted and their credit points are further decreased by 1 to 5 points, depending on the loan amount and type they have applied for. This CIBIL score further impacts the chances of qualifying for a business loan in the future.
FinTech-based Alternate Lenders Offer a Helping Hand
Considering the risky criteria traditional banks and unorganized money lenders adopt to determine a borrowers’ creditworthiness. SMEs need a financing partner wherein their CIBIL score does not get impacted because they applied for a loan. FinTech based NBFCs offer small business loans, where the CIBIL score does not solely determine your creditworthiness and or your ability to repay. FinTech lenders are providing loans to small businesses that most traditional banks consider unprofitable. The features that make FinTech lenders better than other lenders in the nation is that they operate quickly, without the need for collateral or a perfect credit score. The borrower can apply for a short-term loan online within minutes, the application is reviewed within minutes and money is disbursed to the borrower’s account within 3 days.
FinTech lenders use a large number of data points that are analyzed for patterns and associations, related to human behavior and interactions. Credit card activity, earnings, bank account activity, payment histories, business performance and even the applicant’s social media activity are used as data points. Combined with advanced algorithms, these large data sets can offer a huge amount of information that can be used to evaluate the borrower’s creditworthiness. FinTech lenders use this information to make faster decisions about approving financing for SME, which traditional banks avoid.
7 Features of Small Business Loans from a FinTech Company
It Fulfills your Immediate Capital Needs
Any SME, be it a manufacturer, trader, distributor or a B2B service provider, needs fast working capital to cover their operational needs. Even a single day without capital and work puts an SME under a lot of financial pressure. Traditional lending institutions require extensive documentation and take a lot of time in providing business loans to SMEs. FinTech lenders, on the other hand, understand an SMEs urgency, hence get things done really fast.
No Need for Collateral
SME owners usually don’t have an asset that they can offer as collateral, although traditional lending institutions require such assets for secured business loans in India. FinTech lenders do not need any collateral for loan approval. Instead, they look into the SME’s performance, their transaction records and experience in the field to be assured of the repayment of the loan.
FinTech lenders work differently from the traditional financing institutions. They provide small business loans online to fulfill your small business need to purchase inventory, optimize cash cycles and service new orders. Without committing to unnecessary long-term debt, borrowers can select their desired repayment terms and receive the capital in their account within 3 days, without any hassle.
Desired Repayment Schedules
Alternative financing options offer shorter repayment schedules for small business loans. Borrower can repay the amount once they have the money, without being charged any prepayment penalty.
Choose a Loan Based on Your Needs
FinTech lenders offer short term loans online in the form of invoice financing, line of credit, point of sale based loans, merchant cash, etc. These products are specially designed, keeping in mind that all companies operate differently and have different capital needs. Business owners get to choose the product based on their business requirements.
CIBIL Score is Not Affected
FinTech companies are a great source of a small business loan, even if you have a bad credit score. They use financial technology to gain more insight into the borrower, rather than just his less than perfect CIBIL score. Many other factors are taken into consideration in order to make a decision about lending money to the applicant.
Rebuild Your Credit Score
These short term business loans are not only helpful but can be easily repaid in a timely manner. This can have a positive impact to your credit history and boost your credit score. FinTech lender would be more than happy to provide short-term financing whenever needed in the future, once a good relationship is built with them.
Short term financing from FinTech lenders like Muthoot Fincorp is helping SMEs seize quick business opportunities, where transactions are completed within a short period of time. You should remember that different small loans are unique for specific business needs. Find what works best for your SME.