Even though the economy is showing signs of growth, the SME sector is yet to see things come into fruition. Often termed as the backbone of the economy, the SME sector needs quick and easy access to finance that traditional financial institutions may not be able to offer due to a variety of reasons. Thus, there has been a noticeable increase in the number of businesses looking for funding from alternate means of finance rather than going down the traditional route and approaching a bank. Why would such a shift happen? The answer seems to lies with how smaller lenders provide service that is more personal, making it more suited to the requirement of a SME in India.
It also makes sound business sense for small businesses to turn to AltFi (Alternate Financing) over traditional loans. Here are the top 5 reasons that you too could pay heed to when considering AltFi.
Larger financers, like banks or big lenders, are often governed by fixed principles. A small business applying for a loan might not always meet these specifications, and despite showing growth and potential, finds its loan application being rejected. Some lenders also have a cap on the capital they can lend out in a particular quarter. A business can get rejected if it applies after a lender has reached its limit.
Institutions offering AltFi aren’t limited by these conditions and treat each SME loan application independently.
- Larger ranger of loans
Traditional lending businesses often have set industries that they lend funds to. A small business that operates within a new or fairly unexplored sector may find its application rejected.
Alternate finance companies, on the other hand, are more open to giving loans across a gamut of industries, sectors and businesses, therefore making them a more approachable choice for SMEs.
- A panel of expert business specialists
AltFi business might be operated by one person or a panel of experts whose task is to review the loan application and bring their years of financial experience to the table. They help smaller businesses review their loan application and iron out any kinks in the proposal so that it is met with approval by potential investors. This personal touch is often missing in an SME loan availed from banks or large finance institutions.
- Multi-layered, risk assessment model
Many non-traditional lending businesses operate on a multi-layered risk assessment model that conducts a detailed, in-depth analysis of the loan-seeking business. All loan applications are evaluated on the company’s financial health and potential for growth. The numbers are further analysed and then vetted by finance experts. Every loan application thus gets an equal opportunity based purely on numbers.
- More transparency
In larger, more traditional lending businesses, SMEs don’t always know who backed their brand. With AltFi, there is more transparency between borrowers and lenders. Through alternate small business financing, borrowers can approach investors directly and even form long-term relationships with them.