India is known for many things – from being a confluence of many cultures to its varied terrains. It is also home to a flourishing ecosystem of small businesses. Small businesses need to often rely on credit to run and scale owing to their nature and size. Plans to add new product lines or machinery may require large funds. But you may also need smaller amounts regularly to buy more inventory or add new vendors. Depending on how much credit you need, you may experience credit challenges when borrowing from informal sources or a bank. Scaling becomes challenging when you face capital gaps at different growth stages because of inaccessibility to credit.

A small business’s rocky road to borrowing

A salaried person can provide monthly bank statements. A small business may not have such verifiable records of all its transactions and income. The gaps in financial data create an incomplete picture of your business’s creditworthiness, reducing your credit accessibility and affordability.

Moreover, it is harder to get small ticket funds that can be crucial for your business’s short-term needs. Resorting to informal loans, usually with extremely high interest rates and stringent repayment terms, can increase your business’s vulnerability.

Numerous other reasons may become credit challenges for small businesses like yours. For instance, you may:

  • not want to use the funds for purposes other than what a bank specifies
  • not always have collateral
  • need funds instantly for a variety of short-term needs
  • not be able to repay consistently
  • not be aware of all the credit options available to them

Leveraging technology to overcome credit challenges in India’s SMB landscape

India’s small business ecosystem and its challenges are varied, and a single player cannot solve all of them. Banks, NBFCs, and governing bodies are working to strengthen the country’s credit infrastructure. Parallelly, you can leverage technology to build a digital footprint of your business’s finances. The more digital your business goes, the more data you will have to validate its financial viability.

Take small steps like opening a ‘strictly business’ current account with a reputed bank if you don’t already have one. Use digital payment modes to send and receive payments to build a reliable record of your business’s transaction history. Similarly, when you borrow, maintain a healthy credit ratio and repay in time to imrpove your creditworthiness.

Banks and fintech companies can assess creditworthiness using alternative data-led tools that look beyond credit history and cash flow predictions. This can improve loan approval times by cutting down extensive documentation and physical processes. Innovative credit solutions that best suit small business needs can greatly improve the ease of doing business.

Read more to learn how you can get better access to business credit.