Business Loan Sanction Procedure For MSMEs?

It is often said that micro, small, and medium businesses are the backbone of the Indian economy. But sometimes these businesses need support from the economy as well. Many a time, these businesses find themselves without sufficient capital, be it working capital or funds for machinery. In these times of turmoil, NBFCs (Non-Banking Financial Companies) and banks can offer rescue in the form of business loan funding.

Banks have lengthy procedures and sometimes the risk of rejection is attached to them due to unavailability of security with the MSMEs. Banks also seem reluctant in financing the MSMEs because these small business loans become risky due to the lack of collateral. Unavailability of credit at the right time and in the right amount becomes a major setback for the MSMEs. But, times are changing. There are various NBFCs present in the market which provide hassle-free business loans with no collateral. This micro, small, and medium enterprises usually lack any kind of security that can be used as collateral. This deprives them of the benefit of credit available in the market.

Some of these NBFCs resort to online form filling and business loan application submission to make the procedure easier and accessible to even the micro and small businesses. These online NBFCs provide short-term loans for 12-24 months within a few working days. Various NBFCs have various processes regarding the business loan application procedure, which has been made easier and much convenient for the applicant enterprise. In a broad sense of the term, the business loan sanction procedure for MSMEs through NBFCs includes the following steps:

1) Online Application For The Business Loan

The business loan application forms are easily available online. These forms are pretty basic and the applicant is required to fill in the requisite information like name and address of the business, contact details and designation of the contact person, number of years since the business is in operation, the status of the business, registration number, etc. The list of business loan documents to be submitted is given in the application form itself. The business loan application form should be submitted carefully so as to initiate a quick and hassle-free business loan sanction procedure.

2) Submission Of The Required Documents

The NBFCs require minimum paperwork and so it consists of some basic documents. The nature of required documents varies with every NBFC as they have their own set of rules and procedures. Also, the kind of business loan applied influences the documentation needed. The companies use AI algorithms to measure the creditworthiness of borrowers. This checks the risk factor involved in collateral-free loans offered by the NBFCs. These documents are verified through the systems using advanced technology which measure the applicant’s credibility based on business performance, financial performance, and social profile.

3) Verification Process By The NBFCs

The NBFCs generally use Aadhaar and eKYC regulations to verify the applicant’s details. Since these provide sufficient information needed by the NBFCs about the applicant, the verification process doesn’t take long, and quick and easy access to credit is made available to all the MSMEs. Various NBFCs have varying minimum operational history requirements on the part of the applicant. Annual business turnover is also taken into consideration in the verification process. After the verification process is complete, the applicant receives the required credit.

The growth in the finance sector has led to the rise of various NBFCs. This, in turn, has led to a boom in micro, small, and medium enterprise. These NBFCs offer various business loan products such as working capital loans, capital loans, machinery loans, flexi business loans, and term loans. Mostly every NBFC nowadays has digitized the whole procedure of business loan sanction. This has ensured a far and wide reach of NBFC credit and also, the business loan sanction procedure has become much easier as compared to banks.

The lengthy waiting periods have been shortened considerably. The need for availability of security on the part of the borrower has reduced. Credit rating and business turnover performance are taken into account in the process of verification of the applicant. The availability of timely and easily accessible credit has greatly benefited the micro, small, and medium business enterprises.


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