As recent RBI statistics show, non-performing assets (NPAs) at public and private banks reached over 9.5% in September 2022, indicating banks are still burdened by bad loans.
As a result, banks have tightened lending practices, making it harder for small and medium enterprises (SMEs) to secure business finance.
In the ultra-modern virtual generation, fintech lending is becoming essential to serve the growing credit requirements of MSMEs effortlessly.
Banks Unable to Meet Rising MSME Credit Demand
According to the IFC study, 85% of MSMEs lack adequate credit options, with only a 5th of those funding needs being addressed via formal credit channels.
On the other hand, India has over 63 million MSMEs that contribute around 30% to GDP and have a huge $400 billion credit gap, according to IFC information.
This gap between demand and supply has enabled the upward thrust of fintech lending companies utilizing technology to offer quick and easy business finance options.
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Fintech business loans lenders leverage big data and analytics for faster credit decisions, decreased paperwork formalities, and quick mortgage disbursals.
They emphasize on imparting a hassle-free customer experience so that commercial enterprise owners can focus on developing and expanding their organizations rather than financial concerns.
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What is Fintech Lending?
Fintech lending leverages financial technology and statistics to provide quicker, extensively accessible lending services through virtual platforms. Key models consist of:
- Direct Peer Lending
Online structures directly connect investors and business borrowers. It provides easier access to financing but investors and debtors ought to compare risks and terms diligently.
- Crowdfunded Loans
Investors can fund quantities of loans to small firms via fintech lending platforms. Allows traders to diversify and generate returns even as supplying small businesses with growth capital. Know crowdfunding or small business loan which is best your business?
- Digitized Mortgage Lending
Fintech lenders make use of technology to simplify and quicken commercial property loans for small organizations. Automation expedites cumbersome techniques.
- SME Financing
Loans tailor-made, particularly for small and medium enterprises, furnished through streamlined fintech structures. Expands access to capital with alternative credit assessment.
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In precision, fintech lending makes use of alternative data, algorithms, and technology to provide handy, less costly business finance so small corporations can thrive.
Platforms connect traders seeking to diversify with underserved market segments in a streamlined way, albeit with risks. It is a relevant emerging mode promoting financial inclusion.
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Fintech Lending vs Traditional Lending
| Particulars | Fintech Lending | Traditional Lending |
| Documentation | Digital tools like APIs for efficient and hassle-free data collection. | Physical paperwork and signatures. |
| Decision-Making Time | Minutes, thanks to streamlined virtual procedures. | Days or weeks because of massive paperwork. |
| Customer Support | 24/7 help accessible through virtual channels. | Limited to business hours and channels. |
| Risk Assessment | Comprehensive evaluation of more than one data factor. | Focus on credit scores, work and job history, and payment cycles. |
| Funds Disbursement | Same-day disbursement for quick monetary support. | Delayed |
Key Advantages Fintech Business Finance Offer
Here are a few key advantages fintech enterprise loans provide over conventional lending:
1 NPAs Limit Bank Lending, MSME Credit Demand Grows
Banks require huge paperwork and other formalities before processing loans, while fintech creditors have online programs with soft copies of primary documents like business registration, bank statements, and KYC documents.
A 2022 study throughout India and Southeast Asia reveals fintech lending requires 83% fewer documents as opposed to traditional lenders.
2 Streamlined Digital Loans With Minimal Paperwork
The complete fintech loan application system, from eligibility verification to approval, documentation and disbursal takes place digitally in a paperless way.
Business owners can effortlessly track application status by logging into their respective accounts. McKinsey studies indicate over 90% of digital lending in India takes place online or through mobile channels.
3 Fast Approvals and Disbursals Via Technology
By leveraging technologies like artificial intelligence and machine learning, fintech lending agencies can make faster credit decisions and disburse funds in 72 hours or less as opposed to weeks for traditional business loans.
A small business finance report by Allied Market Research indicates that tech-enabled algorithms enable fintech companies to process loans in just a few minutes.
4 No Hidden Fees, Transparent Pricing
Unlike traditional lending, fintech lending companies don’t impose prepayment penalties, allowing borrowers flexibility in repaying early. Additionally, banks often charge hidden fees deducted from the loan amount, while fintech lenders clearly explain charges and have processing fees between 2-5%.
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Takeaway
In conclusion, fintech lenders are meeting the needs of the 21st century digitally transforming small businesses in India by providing quick, transparent, and flexible business finance options.
Leading fintech loan providers have already disbursed over ₹8,500 crores to over 1,50,000 MSMEs across 1300 cities in India through their online platform. As digital adoption grows, fintech lending is slated to gain more traction supporting the backbone of the Indian economy.
Why Fintech is better than Bank?
Financial technology, or Fintech, is an innovative ecosystem of tech-focused businesses that use technology to provide financial services. Unlike traditional banking, which relies on physical branches and manual processes, fintech employs digital platforms to provide convenience, speed, and tailored experiences.
How does a fintech company make money?
Fintech make money in a variety of ways, depending on their specialism. Banking fintech, for example, may make money through fees, loan interest, and financial product sales. Investment applications may levy brokerage fees, use payment for order flow (PFOF), or take a percentage of assets under management (AUM). Payment applications may collect interest on cash balances and charge for services such as previous withdrawals or credit card usage.