Are Digital Lending Platforms a Reliable Way to Get Funds for Your Business?

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What is digital lending?

Digital Lending is associated with a collection of websites or smartphone apps which can authenticate and assess the credit history and fund requirements of individual borrowers by taking the help of centralised technology. The digital lending market in India has seen a meteoric rise thanks to the increase in the number of millennial employees and GenZ employees. The availability of the easy credit has empowered the younger generation to go for easy small loans through the various payment systems. 

Key Highlights of Digital Lending

  • The digital lending market is becoming monumental with a meteoric 150 billion dollars market capitalization in 2020.
  • The digital lending market in India is all set to achieve the highest peak of 350 billion dollars by the end of the financial year of 2023. 
  • A rising tide lifts all boats. Banks were once considered traditional symbols of the true financial power. They were not eager to jump into the technology bandwagon as was evident in the case of crypto currency such as block chain. 
  • This led to the emergence of financial who have introduced AI technology in digital lending procedures. Banks have enhanced their technological capabilities in traditional lending which has led to the mushrooming of digital lending platforms in major banks in India.

Interest rates on Business loans in India in the year 2021:

Interest rate1 % -2%
Loan tenureUp to a maximum limit if 3 years
CollateralNot applicable
Loan amountRs 50 K to Rs 1 Core
Pre-closure feesNot applicable
Charges of processing3% of the principal charges
Time taken to sanction the loanUp to 4 working days

Why reputed banks are opening digital lending platforms?

  • Banks get mighty benefits by digitising the lending process. Digital lending helps managers to make enhanced financial decisions improve customer experience and lead to comprehensive cost savings. 
  • Digital lending can improve the balance sheet performance of a financial institution and can lead to change management transformation across the financial institution.

What are the significant outcomes of digital lending? 

Financial inclusion 

The banking needs of the people in the lower socio economic category are not being met in the credit department. The demand for short term to moderate quantum of credit is peaking in the Indian financial arena. Entrepreneurs who have dabbled in the crypto currency scene are coming up with new technological ideas that are backed with sound financial principles to offer timely credit to the low income customer group in India. 

Discourages borrowing from shady channels 

Informal borrowing in all probability leads to financial distress among the financially illiterate people in the country. Digital lending successfully achieved the objective of sanctioning business loans and helping them achieve financial sustainability and increased profit generation. T

The whole borrowing process is simplified due to the introduction of digital lending practices across the financial sector. Indians are inclined towards borrowing money at astronomical interest rates without caring for the future. Taking loans from family members, friends, and other unscrupulous moneylenders is highly undesirable and will lead t deleterious results such as loss of trust and bankruptcy. Informal borrowing channels thrive because they offer flexibility and are perceived to be convenient in the eyes of the gullible borrowers. 

Precious time savings 

In the traditional setup of lending, the borrowers had to move heaven and Earth to understand the lending procedures in getting a business loan. Digital Lending platforms have revolutionized the bureaucratic loan processes and have introduced a streamlined approach from loan application to loan sanction without the involvement of middle men. As a result, the undesirable practices on part of the financial institutions such increased red tape, absence of transparency have been reduced significantly. Digital lending has brought in an egalitarian approach and aims to restore balance between the haves and have not in credit accessibility.

How to select the right digital Lender?

Digital lending platforms incorporate state-of-the-art technological products to assign eligibility conditions for the business loans. The powerful applications of artificial intelligence, machine learning and data science are used to maintain a robust and streamlined loan application and sanction process. The prime directive of digital lending platforms is to offer tailor made personal loans to people across the financial sector.

People need funds for various reasons such as a wedding, medical emergency or a home renovation. Availing a personal loan from digital lenders is the best way to access funds. With the agglomeration of modern digital lending solutions, taking a business loan has become easier than ever. 

Following are some of the different ways that help you select the best loan provider:

1. Selecting the perfect loan products 

  • There is an exuberance of digital lenders in the market with crowded platform of loan products and new variants of financial loan products are entering the market every day. 
  • Immediacy of the need to avail a personal loan through a digital lending mechanism is irresistible. 
  • Evaluation of the end needs should be done by the borrower and they should select the right business loan product that is effective to meet their credit needs. 
  • In some cases, collateral is required but in majority of digital lending platforms, there is absence of collateral requirement and flexible tenure repayment options are provided. 

2. Comparison of interest rates and processing charges 

Once you decide on the quantum of funds needed, you need to train your focus on the interest rate being charged by the digital lenders. The borrowers should do their homework by researching the effect of interest rate on their long-term finances. 

Lenders have minute variations in the interest rates but even such a trivial change can lead to an increase of paid interest in the longer run. Before the loan application, it is mandatory for all prudent business loan applicants to do a comprehensive evaluation and analysis of the different interest rates in the market.

3. Assimilate the fine print 

The business loan comes with an official document which outlines the terms and conditions of the business loan. This financial contract has legal binding and before signing the dotted line, the business loan applicant should be aware of the different scenarios which can lead to enhanced financial obligations. Contact the branch offices to resolve your queries and only move forward when you are confident that all your doubts have been clarified. 

4. Watch out for hidden charges 

Borrowers should be aware that the personal loan comes with charges such as processing fees and late penalty payments during the loan tenure. The processing fee is applied at the time of your loan sanction. In addition to that, the borrower has to make a mental note of cheque bounce charges and late instalment fees.

5. Penalties on prepayment of loan

It is always the right financial decision to close the loan as soon as you lay hands on some additional disposable income. The interest burden is decreased when you clear off your business loans. However a few unscrupulous lenders are taking advantage of the absence of financial guidelines of RBI and are burdening the borrowers with prepayment penalty charges. It is importance that you understand the quantum of prepayment penalty charges before agreeing for the loan.

The benefits of digital lending platforms to small business owners

1. Swift and convenient 

Business loan applicants can complete their applications within minutes when compared to the cumbersome processes of getting a traditional loan from banks. Previously one had to wait up to 3 months to know the status of their loan application but with the help of digital lending, the borrowing process is simplified and that financial decision is quickly communicated to the applicant saving precious time. 

The time resources saved by the business loan applicant through the use of digital lending are immeasurable and it has a positive impact on the long-term growth of the business.

2. Documentation is kept at a minimum 

Digital lending does not require the borrowers to indulge in mind-straining exercise of drawing a long plan of how you intend to spend every rupee of the business loan before the loan is even sanctioned.

Digital lending only requires minimal information and the other information of the borrower is captured from centralised locations. The headache of the borrowers is decreased to a great extent by eliminating the endless paperwork.

3. Digital lending is optimal for first time loan seekers 

First time borrowers, who are lucky, get a loan sanctioned from a traditional bank. The credit assessment of the applicant is done with great depth and your business experience is evaluated. The reliability as a genuine loan borrower will be objectively evaluated by the lender.

In the post digital lending scene, financial platforms are scrambling to net the maximum number of business loan online applications. Thanks to the centralised repository of financial information and the power of data analytics, the digital lenders are only assuming a small amount of risk by processing the loan applications in a fast manner.

4. Digital lenders are positively inclined towards good credit history borrowers

Modern financial institutions are heavily focusing on the credit history of the borrower. Over the past decade, credit rating agencies have slowly but surely integrated the loan appraisal process with the credit history. 

A good credit score indicates the financial worthiness of the borrower. A score in excess of 700 is found to be the ideal score for getting your loan quantum to be sanctioned. Any credit score less than 680 will raise red flags in the eyes of the traditional lenders. 

Digital Lenders on the other hand understand the need for a robust business model and centre their lending policies by taking a calculated risk. The people who are in the lower rungs of the credit ladder will be sanctioned business loans.

FAQs

1. What is a digital lending loan app? 

Online loan apps also known as digital lending apps offer customised finance solutions also known as small loans beginning from the amount of Rs 1000. The maximum limit depends on the lender and also the financial capability of the borrower. Online loan solutions help business owners to arrange cash and enable the business to turn around the corner and achieve full functional profitability in the long term. 

2. Who can avail a quick online loan using digital lending platforms? 

Technically any smartphone user with the required identification and income credentials can apply for consideration of loan. Their eligibility criteria and the subsequent sanction depend on the individual discretion of the lenders. In a generalized away the common threads of eligibility for online loan are that the age of the borrower should be between 21 and 60 years. 

3. What are the different documents that are asked during business loan application in a quick loan app? 

It is contingent upon the loan borrower to offer some form of identification proof along with income credentials to be considered for a personal loan. PAN card and Asdhar Card are the identification documents. Borrowers are required to scan these documents and upload the same in the website of the personal online lander.

4. What is the degree of safety in using a digital lending loan app?

Majority of the digital lending websites deploy state-of-the-art 64 bit encryption protocol which discourages cyber fraudsters to steal the valuable information. As trust is the important component that leads to the betterment of both the lender and the borrower, the websites go to great lengths in maintaining optimal security and safeguard the financial information of the borrower.

5. What are the basic procedures of applying for a business loan using an online loan app? 

In view of the constrained pressure on the time resources of the borrowers, the online website lenders have made a streamlined approach so that the borrowers can complete the whole application process in simple series of 3 steps. The borrowers are asked to download the app on the smartphone and fill the profile details which are followed by document uploading and finally you are asked to submit a selfie. 

After the completion of the above steps a pre-approved loan offer is communicated to you. Then the second part of the application needs to be filled in detail regarding your repayment capacity. Once the loan provider satisfies themselves regarding your eligibility, the loan is sanctioned and the loan amount is reflected in your savings bank account in 48 hours.

6. How flexible is the repayment tenure of digital lending apps? 

Business loans through online apps make sure that the monthly obligation is on the lower side. The payment of the small loan instalment can be made by keeping in view the money expenditure flows. The repayment tenure depends from as little as 1 month and can extend up to 3 years depending on the quantum and the nature of the loan.

7. What are the different uses of an online loan app?

Online loan app is a saviour to remove the difficulties of financial borrowers in India. The purpose of the loan can be singularly decided by the borrowers. Education costs, vehicle repayment cost and house renovation are some of the uses of a quick loan app.

8. Are MSMEs covered under digital lending platforms?

The government has issued guidelines to the digital lenders that MSMEs can be given credit facilities and business loans. 

9. On what factors do the interest rates of a business loan online depend on?

The quantum of the loan and the income credentials of the borrower determine the interest rates of the business loan.

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