Facts and myths around online business loans?

There is no doubt that unsecured business funding from a fintech lender is the best option for a small business to obtain an online business loan without the hassles of extensive paperwork. Further, the loan application process has been drastically simplified by the fintech lenders, with adoption of digital technologies. Business loans from fintech players offer benefits ranging from easy EMI repayment options to competitive interest rates, unlike profit sharing terms insisted by investors or a long-drawn loan approval process in banks. However, despite the advantages, there are several myths that are prevalent amongst SME loan applicants. This is also because the fintech industry is a new and rapidly growing sector. Many individuals are apprehensive of new trends. We shall debunk these myths with facts.

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Myth 1: In case of lower loan amounts, there is a high chance of rejection

This is complete misinformation. A business should ideally apply for a loan amount as per requirement. Hence the question of low or high does not actually arise. The loan amount sanctioned in entirely dependent upon the business performance and the business needs. The loan approval depends on the satisfaction of the eligibility criteria of the lender.  An SME can apply for a small ticket size loan and get the same approved from an NBFC within 3-5 days if it meets the parameters of being financially strong and creditworthy.

Myth 2: Personal Loan is better than a business loan

This again does not hold in many cases. It is always prudent to separate individual accounts from business accounts. The sanction limit is much lower in case of a personal loan, which might be inadequate for business purposes. The interest rates on unsecured business funding are lower than personal loans. Further, the credit score of the business owner in his individual capacity is considered while granting a personal loan. This does not help build the credit score of the business. It is natural for every business to be subject to business cycles. In case of the business hitting a low, the credit score of the promoter takes a hit, which will impact his/her future chances of obtaining a loan. From the tax angle, interest on business loans can be shown as a business expense deduction in the P&L statement and goes towards reducing taxable income of the business. This benefit is not available in case of availing a personal loan.

Myth 3: Obtaining a business loan is tough

There is a common misconception that it is difficult for an SME to obtain a business loan. This is not true. If one meets the eligibility criteria of the fintech lender like at least Rs 40 lakhs turnover, a decent credit score, submission of GST and IT returns and an operating vintage of at least 3 years, there is a high likelihood of loan approval.

Myth 4: Lenders will insist on a loan against property

This is a common fallacy. In case of banks offering secured loans, collateral cover is mandatory in most cases. …