India’s financial landscape is undergoing a rapid digital transformation through an increase in virtual payments, online transaction portals, and more. As a result, small and medium enterprises (SMEs) are left with a lingering question – “Do I need to make digital payments to avail of an SME loan?”
First Things First: What is an SME Loan?
In a nutshell, SME loan or SME term loansare finance-offerings customized to cover the financial needs of small or medium-sized enterprises. With this, such businesses get the necessary funding to maintain a robust cash flow, construct new infrastructure, or finance short and long-term operational requirements.
Is Having a Digital Footprint Beneficial for SMEs?
87% of the 63 million SMEs in the country lack credit access, meaning they can’t seek loans to aid their business. This is mainly because such enterprises lack adequate financial records, credit history, collaterals, etc. Hence, lenders are unable to assess their repayment ability and hesitate in granting finance. It ultimately leads to no access to additional funds or high-cost loans, both harmful to SMEs.
According to experts, the digital footprint for a small businesscould be a great solution to this. Simply put, digital footprint refers to a person’s internet usage patterns. It includes online purchase history, behaviour patterns, browsers used, IP addresses, and so on.
Since it’s challenging for SMEs to get a business loan, having a digital footprint is a great alternative. Besides, most SMEs already have a digital footprint, as Know Your Customer (KYC) registrations are compulsory for such businesses. KYC form fill-up helps lenders obtain borrower’s information such as their device, email profile, phone number authenticity, IP analysis, etc. These details help the lending institution determine the borrower’s credibility.
If SMEs create a digital footprint, it opens up better ways for availing funds. This compensates for the lack of sufficient paperwork and CIBIL scores, helping lenders assess the SME’s creditworthiness. By evaluating social media data, e-commerce merchant rating, utility bill payments, financial data (IT returns, GST), etc., lending institutions can quickly determine if the business can repay on time.
Additional Read: Business Loan Industry Trends for the Last 5 Years
Is an SME’s Digital Footprint Crucial for availing SME Loans?
While a business’s digital presence is advantageous, it’s not mandatory. The traditional requirements, such as KYC paperwork, income proof, bank statements, etc., are still prevalent for acquiring SME loans.
Though not compulsory, a healthy digital footprint will ultimately help SMEs avail SME working capitalfaster in the future. Moreover, today, financial institutions also use various online data sources to improve turnaround time for loan disbursal and debunk fraud loan applications.
Additional Read: Trends Transforming Online Business Lending
Get a Hassle-Free SME Loan at Tata Capital
If you don’t have a digital footprint yet but need business funds urgently, turn to Tata Capital. Expand your business infrastructure or boost workforce productivity with the latest equipment by availing our SME finance offerings.
Tata Capital offers attractive business loan interest rates, collateral-free SME finance, structured EMI schemes, and favourable tenures. To know more, visit our website today!