The Indian business finance landscape has undergone a significant transformation with the emergence of fintech lenders. The advent of innovative financial technology platforms has brought about a significant transformation in the conventional lending system, presenting a wide range of benefits for businesses needing financial assistance.
With the extreme research Indifi put into the factors contributing to the rapid adoption of fintech lenders as the preferred option for businesses in India. Through this blog explore more on why fintech lenders are the top choice for business finance in India.
It is very evident to know that public and private sector banks in the country are already under a lot of pressure with the NPA problem in India. Correctional measures taken by banks are just making the loan approval process very difficult for small and medium sized businesses. Here, to make the process seamless, Fintech has stepped in.
What is Fintech Lending?
Fintech lending refers to the usage of financial technology like APIs for making lending faster and more informed. It also includes using alternative sources of data to weigh lending risk and connecting various digital platforms for improving data sharing speed.
Through this digitalization, fintech lenders gain more access to the data and help provide secured capital to a wide range of small and mid sized businesses.
How Fintech Lending Works?
Digital technology tools play a huge role here. With the help of these tools fintech lenders issue loans online through websites and mobile applications. There are multiple models that are used under fintech lending. A detailed information is listed below:
Peer-to-peer lending:
In the fintech industry, peer-to-peer (P2P) lending refers to a digital platform that links institutional or individual investors with small firms that require loans. By avoiding traditional banks, this creative lending approach makes it easier for small firms to obtain funding. Small companies disclose their lending requirements and terms on P2P platforms by creating loan listings.
Following their evaluation of these listings, investors decide whether or not to support a portion of the loan. Faster access to finance, competitive interest rates, and a simplified application procedure are just a few benefits of peer-to-peer lending. Businesses with short credit histories can use it since it uses technology and data analysis to evaluate borrowers’ creditworthiness.
It’s not risk-free, though, so investors should diversify their holdings and borrowers should carefully review the terms and interest rates. All things considered, peer-to-peer lending has become an essential part of the fintech lending scene, promoting financial inclusion and helping small businesses expand.
Investor Loans:
Fintech lending for small businesses include investor loans, which are financial agreements in which investors give money to small firms using online lending platforms. An essential part of the fintech lending ecosystem are these loans. Investors, both private and institutional, can choose to fund these loans, and small firms looking for funding can use these online platforms to convey their needs.
By allowing investors to diversify their portfolios and generate returns by backing a share of several small company loans, fintech lending platforms frequently facilitate investor loans. The terms, interest rates, and risk levels of these loans might change based on the platform and the small company borrower’s creditworthiness.
Investor loans provide a win-win situation for both parties:
Investors may receive income on their investments while small businesses receive much-needed funding. Nonetheless, investors should take into account the risks involved with any investment, including the possibility of defaults, when taking part in fintech lending for small businesses.
Mortgages:
Fintech lending for small businesses includes mortgages, which are specific loans that let these companies buy or refinance commercial real estate. The mortgage financing industry has undergone a transformation thanks to fintech lending platforms, which have improved accessibility and efficiency for small businesses. You can utilize these mortgages to buy office buildings, warehouses, retail stores, or manufacturing facilities, among other kinds of real estate.
Fintech mortgage lenders use data analysis and technology to expedite the application and approval process. Small business owners can apply online, and these sites frequently provide competitive lending rates and prompt decisions.
In addition to providing cutting-edge features like automated underwriting and online document submission, fintech lenders may help streamline the often difficult and drawn-out mortgage application process.
Fintech lending is essential to small businesses because it gives them access to mortgage loans, which assist their growth and expansion efforts and allow them acquire the real estate required to function and prosper in a highly competitive market.
Business Loans:
Fintech financing for small businesses offers business loans, a kind of financial instrument designed to especially address the funding requirements of small and medium-sized organizations (SMEs). These loans are made available through online platforms. With their easily accessible, expedited, and technologically advanced loan solutions, fintech lenders have completely changed the traditional lending landscape.
These loans are intended to help small businesses with a range of financial situations, such as expansion, working capital requirements, buying equipment, managing inventories, and more. In comparison to traditional banks, fintech lending platforms streamline the application process and enable business owners to apply online, frequently with faster approval periods.
Competitive loan terms and interest rates are usual, and creative data analysis techniques are frequently used in the creditworthiness assessment process.
Fintech financing improves financial inclusion for small enterprises that might have had trouble obtaining loans through traditional channels by utilizing technology and data. Because it helps these businesses grow, create jobs, and prosper economically, fintech business loans are an essential part of the finance landscape for SMEs.
How is fintech lending different from traditional lending?
The final outcome in both the cases are the same, that is, providing loans to small and mid sized businesses. However, the entire process is slightly different.
Documentation Process:
Traditional lenders use physical paperwork and signatures, whereas fintech makes complete utilization of digital tools, like APIs to gather the information.
Decision Making duration:
Traditional lenders involve a lot of paperwork therefore the decision making takes time. It takes a minimum of days or weeks to make the decision. On the other hand, fintech companies make use of digital tools. This makes the process of loan faster and helps in reaching the decision in minutes.
Complete Support:
To have the support from traditional lenders, companies have to reach them via phone or email and that too only during the business hours. This obstructs the operational hours of the business and also impacts the other process during the day. In case of Fintech lending digital channels are there to provide complete support. 24*7 availability helps businesses here resolve their queries.
Risk Assessment:
Traditional lenders focus on the credit score of the business to determine the risk assessment. For the small business, they generally use job history and the payment cycles to determine credibility. In the case of Fintech lenders, they use hundreds of data points to determine risk, financial habits, on-time bill payments, and bank balance maintenance.
Time of fund credits:
Traditional lenders generally take a longer time in fund credits. Whereas, fintech lenders provide the funds on the same day of the application.
Fintech lenders have undoubtedly transformed the financial landscape for businesses in India. The organization’s effective, customer-focused, and technologically advanced approach has successfully addressed significant deficiencies within the conventional banking system.
With the continuous evolution and increasing prominence of fintech, it is anticipated by the finance team of Indifi that this sector will be more significant in empowering businesses, promoting financial inclusion, and stimulating economic growth within the Indian business ecosystem.
This content was originally published here.
