Digital Lending - SME Loans

The process of lending credit through digital mediums is called digital lending. The advent of technology has turned stringent processes like applying for loans into more convenient ones through these online loan offers. You can apply for these loans from your home, work, or any place for that matter using your laptops or smartphones over the internet. The complete process is done online, you wouldn’t be required to visit the bank. Sharat Chandra Konatham of onion credit believes digital lending is helping financial institutions to serve small-scale business owners in a better and efficient manner. The digital lending market is witnessing good growth, Pandemic has also resulted in a spike for the same. Digital lending has especially changed the game for small business owners and bridged the credit gap small business and startups faced.

How to Underwrite loans when giving an online loan to SME?

Loan underwriting refers to the process lenders follow to verify the credibility of the borrowers. It includes assessing the finances, income, assets, debt, and property details. This assessment gives the lender an idea about the risk-bearing and payback capacity of the applicant based on which the loan is approved by the lender. Sharat Chandra Konatham has extensive experience in the field of finance. In his view, digital lending has motivated new players to join the market and participate in building the economy.

Applying for a loan is more than often a tiresome process. A lot of decision-making goes into it, understanding the terms of conditions on different types of loans and choosing the most suitable option is neither easy nor quick. Whether you’re applying for a mortgage loan or opting for financing for your small business, you will have to go through rigorous paperwork to get the loan underwriting done.

What are possible data points that can be collected while giving a loan to a business?

The loan application process involves organizing piles of paperwork and presenting a good financial position

 Lenders evaluate the following variable while underwriting the loan:

● Credit scores - credit scores can be improved through self-assessment or outsourcing services from recovery agents. Anything above 600 is a good target.

● Stable balance - It is better to maintain a stable balance in your bank accounts. Unnecessary fluctuations generate distrust.

● Positive cash flow (at least previous four months)

● Minimal current debt and liabilities - Your current debt and liabilities should be lesser in comparison to your assets or should be at the most minimum level.

● Collateral value - evaluation of your property and collateral attached.

● The requested amount for the loan

● Repayment credibility - this again involves all variables like credit score, cash flow, other finances.

Conclusion

Digital lending has come as a boon in these testing times of a pandemic. The economy is slowing down and it needs a boost of new participants. Small scale businesses play a huge role in pulling the economy up, their participation must be encouraged. Banks and financial institutions under the measures supported taken by the government are coming up with more convenient ways to offer credit to small-scale entrepreneurs.