In 2017, small businesses in India had to sustain growth by eliminating impacts of demonetization and goods and services tax (GST) implementation. Recently, the World Bank predicted that Indian economy will grow at 7.3% in 2018-19. Hence, the small enterprises and startups will need credit to meet their working capital needs and fund business expansion. Several studies suggest that small businesses in India often find it difficult to avail bank credit. However, the latest financial technologies nowadays enable entrepreneurs to avail credit through a number of unconventional and technology-driven loan products. Also, many lending institutions have already started using financial technologies to simplify credit evaluation and speed up loan disbursements. The technology-driven loans and financial technologies will have a big impact on lending: here are some small business financing trends for 2018.
5 Small Business Financing Trends To Watch For in 2018
1) Most credit products will be handled digitally
Many analysts believe that internet has minimal impact on banking for small and medium enterprises (SMEs). Most non-banking financial companies nowadays leverage financial technologies (fintech) to enable entrepreneurs to avail various credit products in a faster and more convenient way. Many lenders nowadays evaluate creditworthiness of borrowers based on real-time data like POS bases sales. Likewise, most lending institutions are adopting financial technologies to simplify loan application processing and speed up loan disbursal. In 2018, both banks and NBFCs will leverage latest financial technologies to hand various credit products digitally.
2) Many entrepreneurs will prefer NBFCs and Fintech Companies to banks
Nowadays, both banks and NBFCs allow small business owners to choose from a wide range of credit products. Many entrepreneurs nowadays prefer availing credit from NBFCs to avoid lengthy loan approval process and strict credit requirements. The Fintech companies, unlike banks, enable entrepreneurs to avail technology-driven loans like POS-based loans. These options enable borrowers to avail credit according to their monthly turnover. They can even have option to choose from a number of loan repayment options. In 2018, many entrepreneurs will prefer NBFCs and FinTech companies to avail credit quickly and repay the debt flexibly.
3) P2Ps will make business loan available at lower interest rate
In October 2017, the Reserve Bank of India (RBI) issued directions and guidelines for peer to peer (P2P) lending platform. The Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 will enable small business owners to avail credit through crowd-funding options. The P2P lending platforms will further bring borrowers and lenders together from diverse geographic locations. These platforms will further make it easier for entrepreneurs to avail unsecured business loans from individual lenders. They can even negotiate with the lenders for lower interest rates.
4) Many borrowers will prefer Point of sale finance to conventional term loans
Several studies suggest that Indian point-of-sales (POS) machines and terminal market has been growing consistently and steadily. With more and more businesses installing POS machines and routing sales through EDC systems, the Point of sale finance will emerge as a robust alternative to term loans. The entrepreneurs will opt for POS-based loans to avail credit based on the sales routed through EDC systems. They can even avail more credit by persuading customers to make payment through debit or credit cards. At the same time, Point of sale finance will also help small businesses to repay the loan in a more flexible way by choosing from multiple repayment options. Here are 7 important points to know about Point of sale finance.
5) The Insolvency and Bankruptcy Code will make banks provide credit to SMEs
The Insolvency and Bankruptcy Code, 2016 (IBC) contributes hugely towards improving ease of doing business in India. The IBC further help lending institutions to cut down average time to resolve insolvency and facilitate time-bound closure of businesses. The commercial banks in India can further take advantage of the IBC to mange stressed assets by identifying financial distress in advance. Hence, the IBC is expected to contribute immensely towards boosting bank credit growth in 2018. The increase in bank credit growth will make it easier for small business owners to avail business financing.
On the whole, the small business financing in India will be impacted by several existing and emerging trends. However, the trends in small business financing may keep changing due to a number of internal and external factors. The small business owners must monitor the financing trends consistently to avail credit from the right source and on favorable terms.