Small businesses need financial assistance to start and run their business. While a few years ago the small businesses had very few options to get financial assistance for business. Some of them included using for a loan for business from the local money lenders and this eventually proved very costly as they charged an astronomical interest rate. The other option included asking for startup business loans or funds from friends and family, while it worked initially, eventually, it risked the relationships and people realised it wasn’t worth it.
This is where people started reaching out to the traditional lenders for business loans and a key problem was that they asked for collaterals for business loans and also took a long time to process these loan for businesses. Eventually, the rise of digital lenders helped the small businesses as the top digital lenders like Indifi are now offering online business loans without any collaterals based on the business transactions of the small businesses.
Although the digital lenders have now made it easy for the small businesses to get access to a loan for businesses, the small businesses need to ask some basic questions when searching for financial assistance, some of these questions are:
Why does business need funds?
The primary question which every business needs to answer before going for a business loan is to have a clear answer on why does the business need the loan for the business. Is it to acquire an additional client or to cover the working capital gap or to set up a long term investment for future revenue? Every objective will have a corresponding solution in terms of the business loan. As the top digital lenders like Indifi offer online business loans that serve a specific purpose and are more suited for those needs. For example, the travel agents can get a short term loan to acquire new clients and can repay within 5-7 days.
How much time does the business have to get the funds?
Another important point to ponder for the businesses is to understand the time duration for which they want to utilise the loan for businesses if it is an ongoing requirement a credit line will be better suited as they can use it every time the need arises. However, if it is an investment which needs to be managed over the long term, the term loans will solve the purpose better. For instance, a hotel will need a long term business loan to set up a bar or an additional conference section which can be paid for over the long term.
What is the collateral business has to offer to lenders?
Lenders need collaterals to analyse the creditworthiness for the small businesses. While the traditional lenders look for residential or commercial properties to assess the creditworthiness, digital lenders like Indifi assess the creditworthiness on the basis of the digital trace of business transactions. The retail businesses can be assessed on the basis of their transactions against the card swipe machine and the restaurants can be assessed on the basis of their transactions with the food delivery apps and so on. Thus, with online business loans from the digital lenders like Indifi a small business can offer the digital trace of transactions as the collateral.
Is the repayment plan ready?
The often overlooked aspect the small businesses tend to ignore is not planning for the repayment of the business loans. While they identify the need and tenure, there is no clear plan for creating a funnel for repayment of startup business loans or even other business loans. This often results in delayed repayments or a few missed EMIs and spoils the repayment track record and credit history of the borrowers. A good option for the small businesses is to integrate the repayments with the business transactions, the same is allowed by the leading digital lenders like Indifi. For instance, a restaurant can obtain an online business loan basis their transactions with the food delivery apps and integrate their transactions with the loan repayment. Which means that the loan gets repaid with every customer transaction and the restaurant needs not to plan separate repayment mechanism for these business loans.
