Reasons For Increase In Demand For Business Loans From Alternative Lenders - Business Loan Blog - Tata Capital

4 Reasons for the Increase in Demand for Alternative Lending

Mar 06, 2017

Businesses in dire need of finance may obtain a loan to fund their expenses. Many aspiring entrepreneurs fail to establish themselves in the business world due to the lack of funding. However, financing should no longer be a problem due to the numerous options available in the lending market. Besides traditional banks that offer loans, you may also avail of a loan through alternative lenders.

Alternative lending refers to the wide range of options available apart from a traditional bank loan. Such lenders are usually Non-Banking Financial Companies (NBFCs).

The number of businesses opting to borrow from NBFCs has increased greatly. Following are four reasons responsible for the rise in the number of individuals applying for business loans from alternative lenders.

1. Relaxed credit requirements

Banks generally require applicants to have a good credit score in order to be eligible for a loan. Failure to meet the minimum credit requirement leads to the disapproval of the loan application. Alternative lenders, on the other hand, have relatively relaxed credit requirements. They provide loans to those with poor credit or no credit as well. However, in such cases, lenders charge a higher interest rate to offset the risk associated with the non-payment of Equated Monthly Installments (EMIs).

2. Flexible repayment options

As NBFCs are not monitored under the same regulations as that of banks, these companies offer a high degree of flexibility during repayment. Usually, banks require borrowers to repay a fixed amount of EMI on a regular basis. Alternative lenders, on the other hand, allow businesses to repay as per their cash flow. In case the turnover for a particular month is higher, the business may make a higher repayment, and vice versa.

3. Greater ease of access

Loans from alternative lenders are more easily accessible as compared to traditional banks. Besides, the time taken for approval is also lower. Upon successful submission of the required documents, the loan is processed quickly and then disbursed into the business' primary account. On an average, alternative lenders take three to five working days to process a loan application. Enterprises may, therefore, have greater access to finance during a cash crisis.

4. No hidden costs

Alternative lenders pride themselves in the transparency they offer. Borrowers may view the breakup of the complete cost to service the loan. Additionally, these lenders have a portal on the Internet. Hence, borrowers may view the details of their business loan online. The web portal also mentions the various costs associated with a loan, so that businesses make a well-informed borrowing decision.

Loans are a great solution for a business's cash flow problems. While traditional banks offer attractive benefits for loan seekers, stringent eligibility criteria often make loan seekers switch to alternative lending. Additionally, businesses are also approaching NBFCs upfront to meet their cash requirement due to the numerous advantages such loans have to offer. Owing to such a great demand, NBFCs are now set to grow even further.