Despite the significant contribution in strengthening countries’ economic growth and driving the engine of employment generation, the SME sector still toils to procure working capital owing to the unavailability of sufficient documents to demonstrate to the banks. Information with regard to the USP of business, balance sheet, products description, history of business operation, and business projection for the next three to five years define the creditworthiness of the borrower. Failure of submitting all the documents minimizes the chances of getting the loan approved.
Even if the credit is available, the cumbersome loan disbursement process of banks and exorbitant interest rates put immense pressure on growth prospects. Though banks do not have a dearth of money, they lack a proper risk management framework to assess the creditworthiness of small businesses (due to information asymmetry).
The unmet SME lending requirements, however, present huge opportunities for new-age alternative lending providers to intrude into the system, reshaping the way lending has been done by legacy banks so far. These players have witnessed innovation across loan origination, underwriting, documentation, data management, profile management, and loan servicing. Unlike traditional lending, alternate lending requires the company’s bank statement for the previous 12 months, supporting documents such as invoice copy, receipts against payments, references, canceled check, digital footprints of the borrowers, online transaction history, and more.
Having realized the potential of addressing the existing credit gap among small businesses, banks now have started reinventing the SME loan approval & disbursement process by leveraging the latest technologies like data analytics, big data, and artificial intelligence.
The glitches in the SME lending
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Most of the time, banks refuse to lend money to those whose
