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Tata Capital > Blog > What’s Trending > How data is transforming small business lending

What's Trending

How data is transforming small business lending

How data is transforming small business lending

Small businesses are critical drivers of economic growth. Unfortunately, they also remain an underserved segment of the Indian economy when it comes to credit access. However, with advancements in technology, innovative lenders like Tata Capital have harnessed data to drive deeper penetration in small business lending. 

Today, data is more accessible than ever before. From the introduction to GST to the increased digital adoption since before the pandemic, there is a general move towards digitisation, making more data available regarding individuals and business transactions. 

Employing Machine Learning and predictive algorithms to the data available offers lenders deeper and valuable insights that are transforming lending as a whole and making it more accessible for small businesses. 

Here’s how data plays a role in transforming small business lending:

Data demonstrates the company’s financial health

Insights into the overall financial health of the company can help assess the credit risk of the company. One of the critical reasons for MSMEs to remain out of the credit access system has to do with the fact that it was cumbersome and time-consuming to assess the credit risk posed by these companies. This obstacle denied access to capital even to creditworthy small businesses. 

However, thanks to the Digital India initiative led by the government and the RBI, lenders have access to data that indicates the MSME’s financial position. From e-invoicing to credit bureau data and past transaction and trade history information, lenders can access relevant information at the click of a button. Additionally, access to alternate data points on customer behaviour patterns and trends based on their internet presence allows lenders to make a thorough credit assessment. Lenders can underwrite loans based on these verified data sources offering relevant and authentic information. 

Data aids inclusion

Data analysis and machine learning can provide a very nuanced picture of the applicant’s creditworthiness. In addition, there is the possibility of accessing real-time data of the business, such as sales trends, shipping trends, customer reviews, and employee/supplier feedback. 

Access to such information allows lenders to do their due diligence while empowering MSMEs to have the flexibility to choose a lender that offers convenience and better pricing.  

Additional Read: Top 4 Personal Finance Rules That Always Work

Data to simplify processes

Borrowing typically requires different kinds of information from the customer throughout the loan tenure. Technology enables ease of uploading KYC and legal documents, and API integrations ensure that customer efforts to input relevant information are minimised. Additionally, data along with optimised workflows facilitate faster and more efficient end-to-end interactions and transactions.

Data aids automation

For companies to employ the latest technological advancements, data must be available, integrated, and digital to reap maximum benefits. Armed with the correct data, lenders can leverage machine learning and artificial intelligence to develop self-learning algorithms and scoring engines that can automate loan application processing, preliminary credit checks, and periodic risk assessments. 

Leveraging such technology simplifies processes for small businesses to access financing while strengthening internal systems and workflows for financiers. 

Data offers insights

Robust data mining capabilities provide financiers with crucial insights. Lenders can use these in various ways. For example, data is available on several variables such as past credit history, industry trends, market trends, and other subjective variables. Insights could help lenders mitigate risk, predict bad debts, and reach out effectively to MSMEs who need funds and facilitate seamless access to credit. 

Additional Read: Digitally Empowering SMEs in India

Over to you

Data has already begun upgrading lending for small businesses. If used wisely, data can help simplify lending and improving convenience, accessibility, and user experience for all. At Tata Capital, our end-to-end digital loans empower small businesses to conveniently access our diverse loan offerings from the safety and comfort of home at competitive terms.

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