In India, Micro, Small, and Medium Enterprises (MSMEs), new ventures, and startups are highly important to economic growth. That’s because they significantly contribute to GDP and create jobs. As per a recent estimate, the MSME sector contributes around 30% to GDP and employs more than 1100 lakh people.
However, they face difficulties in getting enough funding on time. Non-Banking Financial Companies (NBFCs) solve this problem by offering flexible and technology-based financial services, which traditional banks usually do not provide. This support helps MSMEs and startups grow and sustain their businesses. They offer more flexible and customised loan options. Also, the lending process is quick and carries fewer strict requirements. This makes it easier for smaller businesses to get loans.
How NBFCs support startups and new ventures
Most NBFCs offer easier access to credit. They provide financial support to underserved sectors, especially those operating in rural and semi-urban areas, where traditional banks are less accessible. In this way, they are actively bridging the significant “credit gap” for Indian MSMEs, which exceeds Rs. 38000 crore (as estimated by the World Bank). This way it reduces the credit gap and helps entrepreneurs and local industries to thrive.
For a greater understanding let’s see how NBFCs, are helping MSMEs, startups, and new ventures grow their businesses:
Flexible loan products
NBFCs offer loans as per the specific needs of small businesses. This includes loans for:
- Working capital
- Buying equipment
- Purchasing gadgets from offline/online stores
- Expanding the business
NBFCs are different from traditional banks, which usually have rigid loan structures. Instead, NBFCs are more flexible and willing to work with smaller businesses that may not have long credit histories. Some NBFCs offers collateral-free business loans to new ventures and startups up to Rs. 80 lakhs.
Faster loan approvals
Most NBFCs use modern technologies, which speed up the loan approval process. This is important for small businesses as they need funds quickly. You can receive the loan amount in your account within 48 hours of approval. Nowadays, modern NBFCs digitise many steps of the lending process and process applications faster than traditional banks. The faster disbursement of funds is particularly useful when businesses face urgent financial needs.
Collateral-free loans
One major benefit of NBFCs is their willingness to offer “unsecured loans”. For the unaware, this means businesses don’t need to provide assets like property as collateral. This is helpful for new ventures and startups, which often lack the necessary collateral to secure traditional bank loans. By offering collateral-free loans, NBFCs reduce the financial burden on small businesses and make it easier for them to access funding. There is no requirement for any guarantor. Also, the repayment tenures are flexible and range from 12 months to 8 years.
Alternative credit scoring models
NBFCs use creative methods to assess the creditworthiness of MSMEs and startups. Instead of relying solely on credit scores, they look at factors like:
- Transaction history
- Cash flow
- Other non-traditional data
They make an assessment based on these alternative factors and check whether a business qualifies for a loan. This approach helps businesses with shorter credit histories or newer operations. Business loans up to Rs. 80,00,000 can be easily obtained even at a CIBIL score of as low as 685.
Digital platforms
Modern NBFCs use digital platforms and technology to simplify the loan process for MSMEs, new ventures, and startups. Through these platforms, businesses can apply for loans online. This reduces the need for extensive paperwork and makes the entire process faster.
Moreover, this technology-based approach helps NBFCs offer loans to more businesses and even lend in rural and semi-urban areas. This helps small businesses as they get the funds with less hassle and quicker approvals.
NBFCs play an important role in supporting MSMEs, startups, and new ventures. They do so by offering flexible and easily accessible lending. Most NBFCs operate differently from traditional banks and offer collateral-free loans at competitive interest rates. The approvals are generally faster, which makes it easier for smaller businesses to quickly get the funds they need. The loans are collateral-free and do not require even a guarantor!
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