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Small Businesses and Big Opportunities- Here's How Credit is Available for All A quick guide to various credit alternatives for small business owners

By Ajit Kumar

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Today, 55-60 million micro, small and medium-sized enterprises (MSMEs) operate in India today, as per "Credit Disrupted' a report by Omidyar Network and the Boston Consulting Group. The potential of this segment is growing rapidly, thanks to the start-up movement, strengthening digital infrastructure and the e-commerce revolution shaping Indian consumer behaviour. However, the sector is still performing way below its potential, not being able to contribute optimally to the nation's Gross Domestic Product and employment. Why? Lack of finance availability has been identified as the most prominent reason.

Roughly 40 per cent of entrepreneurs in this sector has to borrow from the informal sector, which charges sky-high interest rates. With formal credit sources, such as banks, NBFCS and other semi-public institutions still trapped in processes that are time-consuming, bureaucratic and documentation focused, entrepreneurs, have no other option but to access funds at higher interest rates to meet business requirements. This increased their operational costs, resulting in lower revenues and a debt burden that often gets too overwhelming. Formal institutions have rigid evaluation parameters-such as a healthy credit score-which is unfair for small businessmen in tier-II and III regions who might not have a formal financial history as such. If you are a small business owner who is just starting out or might not have a healthy credit history due to various reasons, here are a few ways you can get a loan and get your business up and running-


Small businesses often need credit during a particular period for a specific purpose, with a limited and pre-determined amount. The main concern of the entrepreneur is to avail the loan at the earliest; else the opportunity might be missed. Such institutions are of great help to young entrepreneurs as well who have just started on their professional journey and do not have the necessary financial credentials to fall back upon.

Business Credit Cards

Intended to be used for business rather than personal use, business credit cards can help an enterprise build a favourable credit history. Many small business owners prefer secured business credit cards as it gives them more control over their credit limit and fees. Entrepreneurs who have a good personal credit history can also opt for personal credit cards with a high limit as it does not incur liability on the business.

Collateral-Based Secured Loans

Small business owners can also mortgage property to acquire loans. Secured loans often have lower interest rate and can be availed for a much longer period of time. Formal institutions such as banks are also more approachable when it comes to collateral based loans as the risk assumed is lesser. However, the proper valuation of the collateral needs to be done by independent third-party providers to ensure the loan amount corresponds to the existing worth of the collateral.

P2P Lending

With the growth of digital infrastructure and sophisticated profile evaluation tools through data analytics and alternative profiling, intermediary-free peer-to-peer lending has become quite popular. Digital lending to MSMEs has the potential for 10-15X expansion to reach INR 6-7lakh crores in annual disbursements by 2023, and P2P lending forms a significant part of this estimate. P2P fintech players have started offering micro-loans to SME owners, even to those with no credit bureau records. These data-analytics focused enterprises are using alternate matrices and data points, such as the borrower's digital profile, to establish ability and intent of the borrower to pay back a loan and their income stability. Borrower profiles that are analyzed across such various points can be easily accessed by investors, leading to complete transparency in operations of P2P lending companies.

Ajit Kumar

Founder of RupeeCircle

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