How to Bridge the Credit Gap for Micro and Small MSMEs?

In today’s fast-evolving financial sector, there are credit options available to everyone. Whether it is for personal use, or business purposes, availing of financial backing from banks and financial institutions has never been easier. 

However, various entrepreneurs and individuals face problems while trying to get sufficient funds. Even though Business Loans without collateral are being provided by various lenders, certain limitations leave entrepreneurs with a lack of funds. 

This issue can be traced to a lack of knowledge regarding financial instruments, limited reach in semi-urban and rural areas, and poor financial hygiene of individuals. Since Micro, Small, and Medium Enterprises (MSMEs) contribute greatly to the Indian economy, providing adequate funding to such businesses is imperative. 

The lack of funding for MSMEs has been highlighted in the past. According to previous government committees, due to MSMEs’ informal nature, banks face a problem with credit risk assessment. This is due to a lack of financial data and historic credit information. Reports have also stated that very few MSMEs are able to avail of financial backing, and the huge gap needs to be addressed. 

Addressing the Credit Gap for MSMEs through Digital Lending 

Today, digital lending has become one of the key aspects of the country’s financial sector. Digital lending not only effectively fulfills the financial requirements of entrepreneurs but also has the potential to reach enterprises in semi-urban and rural areas. 

Thanks to active digitization across the nation, individuals living in remote areas also have access to the internet. Taking this into account, various lending institutions and Non-Banking Financial Companies (NBFCs) are offering Business Loans without collateral through online applications. 

The online application process is simple and hassle-free, enabling various business owners to avail of funding for business expansion. NBFCs operate with digital agility and speed and process loan disbursal faster than traditional banks. They are also able to acquire more customers at a low cost of acquisition as compared to banks. 

In addition to this, digital lending institutions can offer customized Business Loan solutions for MSMEs. This ensures that business owners can avail of adequate funding as per their requirements. This is particularly beneficial for smaller loans, which are preferred by many small business owners for immediate working capital infusion. 

Further, digital lenders have an omnichannel presence. This ensures wider reach and availability, even across rural parts of the country. Along with online applications, entrepreneurs can also visit branches of these NBFCs to apply for Business Loans without collateral. 

Using Technology to Reach more Entrepreneurs 

Machine learning, deep and sophisticated algorithms, and data marketing have also enabled NBFCs and other lending institutions to gather more information about their borrowers. Using these technologies, they can offer tailor-made solutions to borrowers at attractive interest rates. 

Also Read: How To Reduce The EMI Burden On The MSME Loan?

The advent of electronic payment solutions and portals has also made loan repayment easier. Before applying for loans, borrowers can use an online Business Loan EMI calculator to determine their EMI payments and loan tenure concerning the amount they wish to borrow. 

Summing Up 

As MSMEs are considered the backbone of the Indian economy, the Government of India has launched various schemes to ensure adequate financial assistance. Besides this, the amalgamation of fintech systems, NBFCs, and digital lending processes has made it easier to avail of online Business Loans without collateral. 

If you wish to apply for a Business Loan, carefully go through your chosen lender’s eligibility criteria. Online applications for Business Loans do not require collateral or hefty paperwork. You only must submit minimal documentation to get your Business Loan application approved. Also, before you apply for the loan, use the Business Loan EMI Calculator to know your EMI. This unique feature will help you plan your finances and your repayment. 

Further, the turnaround time of these applications is faster compared to visiting a branch and applying for a loan. Applying for Business Loans online saves time which you can use for streamlining other operations in your enterprise. You can get funds disbursed into your account instantly and get started with your expansion goals for your enterprise.

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