According to a report by IBEF, India is home to around 3 lakh SME’s. In addition to contributing significantly towards India’s economy it provides employment to a number of Indians. Most of are aware of significant role SME’s play towards the growth of our economy however, it’s not without its share of challenges. A majority of the businesses that contribute to the SME sector often faces critical challenges to its survivability. The ongoing pandemic COVID 19 has severely affected the sector with the various curbs imposed in the forms of lockdowns and curfews on several parts of the country. However there has always been a credit gap in the sector.
The SME sector witnesses a huge credit gap in India which is a hindrance to the growth of these companies. However, one such reason is the start-ups saying no to bank loans.
Lack of hard assets – Business owners of various startups usually don’t own hard assets. They are also not seeking capital to buy hard assets. On the other hand, Banks are reluctant to disburse unsecured loans to various startups because of the exposure of risk associated with these companies and prefers disbursing secured loans (against collateral). Startups usually seek funding from other sources often showing their business growth projections
Repayment structure of loan – Once the loan is disbursed, the repayment of the loan starts immediately and this is expected by the bank whether the company is operating a profit or loss. This results in the lack of financial freedom for the business owner.
Liability – Startups always comes with a certain degree of risks; this is the reason why most banks offer secured loans for startups. The collateral will usually be the personal assets of the business owner. Even though, the owner is aware of the risks in the business, he would not want his personal assets to absorb that risk, if his business does not succeed which makes the owner less averse to bank loans.
According to a BizFund report, only 16% of MSMEs in India receive formal credit, leaving more than 80% of these businesses under-financed or reliant on informal sources of funding. Informal lending is substantially more expensive than official debt, making it harder for MSMEs to manage their debt load.
Fintech companies are able to fill this credit gap due to a variety of factors. The first is the government’s ongoing efforts to digitize SMEs – through skill development, GST implementation, and increased availability of Aadhaar-based KYC – in order to catalyze growth on all fronts. Fintech companies have benefited from this by being able to deliver data and technology-based services to SME.
Fintech firms also provide unsecured small business loans, which are particularly beneficial to new businesses. Banks prefer to lend to larger companies and are hesitant to provide small loans to SMEs looking to start new ventures. Fintech lenders provide flexibility in terms of loan amount and repayment options.
However, with many fintech companies such as ZikZuk have stepped up to the occasion to provide unsecured loans to companies in the SME sector. ZikZuk have launched their business credit card exclusively for business owners called ‘Founderscard”. The card, which is aimed at founders and CEOs of start-ups and SMEs, is also designed to optimize working capital and manage all expenses digitally, including business, petty cash, and travel expenditure.
Founderscard the latest offering by fintech company ZikZuk is a business credit card for business owners which offers best in class credit, rewards and benefits and AI generated reports so that one can always stay on top of his business expenses. Founderscard enables business owners to
Easy access to credit – In comparison to other traditional cards, Founderscard delivers the best in class credit limit, allowing business owners to meet their credit needs which includes early payments to vendors and working capital needs thereby optimizing cashflows.
Manage your finances – Expense management has never been easier. Understand and manage your business spending effectively using real-time transaction data and AI-generated business reports. These reports enables business owners to take data driven business decisions.
One stop solution for your travel expenses – Founderscard has one of the lowest Forex markup fees, at 2%. Founderscard also provides a one-stop travel solution with unique discounts on travel expenses. To know more about the Founderscard and its offers please visit founderscard.in
