Last November’s Demonetisation move created high expectations of low business loan interest rates. This expectation hasn’t been fulfilled and interest rates may remain static for a while to come.
In an earlier blog post, we discussed why SMEs developed a dependence on cash transactions and what the likely scenario will be going forward. Here, let’s look at the details of some of the specific factors that will lead to a breaking of the cash habit.
Continue reading “Keeping Your Business, Credit eligible, In A ‘No Cash’ Economy”
India Inc.’s dependence on cash has traditionally been high, especially with MSMEs. A radical policy move like demonetisation has however compelled small businesses to consider alternatives to cash, which hopefully will become a habit. A habit that will serve business well in the emerging environment.
Marketplaces have always been the preferred shopping choice since forever. In the offline world, marketplaces that showcased a variety of products sold by multiple merchants made it easier for a shopper to pick and choose the best product at the best price. When this model moved online (with the likes of Amazon, ebay, Flipkart, makemytrip), ‘convenience’ got redefined and was taken to another level.
Alternative Lending is a very broad term used to describe the wider set of business loan options available to business owners.
Given the general under-penetration of banking services in India, it is no surprise that Alternative Lending channels are making inroads.
The world is going online and everything needs to be Bigger, Better, Faster, and More! So why should getting a business loan be any different?
There are many tangible benefits that SMEs can enjoy by going online for their small business loan needs.
Despite their importance to the Indian economy, MSMEs suffer institutional neglect with access to financing at a reasonable cost being one of the key pain points for small businesses. However, a combination of realisation of the importance of this segment, improved risk appetite, and innovations in the channels linking borrowers with lenders is slowly but surely changing things for the better.
‘Digital India’ is much more than a political slogan. At its core, it is the belief that technology can help improve access to services for hitherto neglected segments of society and the economy.
One such segment is SMEs. Technology is already revolutionizing lending in India and it can bring a true disruption in SME lending, which is ripe for improvements. Measuring borrower risk accurately is something that lenders have always struggled with. This gets trickier with smaller businesses given that such these borrowers do not always have organised revenues and expense trails.
Optimising Your Small Business Loans With ‘Debt Consolidation’
The title quote could apply just as well to your loan book as it does to Rowling’s book! Habitually, borrowers have preferred to borrow from multiple sources, in multiple forms. A Term Loan from Bank ‘A’, a Working Capital Facility from Bank ‘B’, a Loan Against Property from NBFC ‘C’, an Overdraft from Bank ‘D’, and so on. The reasons for doing so are varied: changing needs over time that require additional borrowing, perception that distributing the lender base and type of loans increases borrowing ability, and a false hope that the true extent of leverage cannot be clearly assessed by a new lender.
Some of these reasons may have been valid in a pre-digitisation era and in a time when credit scores and records were not consolidated in one source. However, these perceived advantages have been rendered totally irrelevant now.
The crucial 50 day period following the demonetisation announcement is about to end. This period has been characterised by economic convulsions, adjustments, and apprehension about the future. The difficulties that businesses small and large have faced in this time are real and well known. However, the feelings of apprehension are as real for lenders as they are for borrowers.
Following demonetisation most lenders have gone into wait and watch mode as their risk appetite has gone down even as borrower risk profiles have gone up. According to RBI data , credit or loan growth for the fortnight that ended November 25 – the first reporting fortnight after demonetisation – declined to 6.6% from 7.9% on a year-on-year basis in the previous fortnight, i.e. before the demonetisation announcement. This is nearly half of the long period loan growth rate of 12.9% between 2012 and 2016. In the fortnight ended December 11 (the latest available), YOY growth dropped even further to 5.7%.