Since time immemorial, people have sought loans for both personal and business needs. A valuable object or asset placed as a guarantee against a loan is referred to as “collateral.” The collateral is returned to the lender on loan repayment; if the borrower defaults, the collateral is kept by the lender.
The incapacity of online e-commerce businesses to provide collateral has consistently acted as a barrier to obtaining loans for company expansion. It might be challenging for a small business to obtain a business loan without collateral since traditional financial institutions have stringent qualifying requirements, even for those with a clean record and compliance with tax and policy norms.
A Loan for E-commerce Businesses: What is It?
Specific needs for e-commerce companies include lead generation, distribution, conversion, and online compliance. Such a company needs quick and simple finance solutions to achieve these criteria.
To satisfy the unique needs of an online firm and encourage trade in the e-commerce industry, many lenders provide support in form of e-commerce loan. These ecommerce loans, which come with appealing interest rates, can be used to pay for things like website design, brand advertising, and, most importantly, expansion.
Requirements for Collateral-Free Loans
A good credit score
Having a high credit score is the most important need for getting ecommerce loan. No bank will take into consideration the borrower’s request for a loan if they do not have a high score.
Any irregularity in the loan applicant’s financial history, such as returned checks and late payments, will have a negative impact on their credit score. When it comes to loan approval, the individual who has a stellar credit card and loan payback history will be given priority.
Good repayment capability
The bank closely examines the individual’s bank balance before granting loans. To evaluate the loan applicant’s ability to repay the loan, they may request a copy of their bank account statements for the previous year.
Additionally, the person’s income stability is considered, and for those who are salaried, a pay statement is requested. Businesses are required to provide income tax returns, balance sheets, and P/L statements.
Collateral-free loans for small-sized e-commerce businesses are only given out once these characteristics of the applicant have been thoroughly examined. In addition to these, the lender must provide the financial institution with the required KYC information, evidence of company registration, identity documents, and PAN card details.
Business Loans Offered by NBFCs
E-commerce businesses or online small businesses can obtain a business loan from NBFCs or other financial organisations. These organisations are registered under the Companies Act of India and are subject to Reserve Bank of India regulations.
The NBFCs remove several obstacles that frequently cause delays in loan processing and offer loans in an atmosphere that is business-friendly.
Collateral-free Loans for Female-owned Businesses
Women are underrepresented in India’s expanding entrepreneurial scene; currently, they make up only 14% of all entrepreneurs in the nation. However, there are several initiatives launched by different financial institutions to provide aid to such business owners.
Small businesses involved in handicrafts, food processing, cloth manufacturing, cosmetics, and other related fields make up the majority of the loan applicants. The range of loan amounts is usually INR 50,000 to INR 1 crore. Women entrepreneurs are also given preference when it comes to offering low interest rates.
How Indifi Can Help E-commerce Businesses?
When questioned, the majority of small firms in India said that the largest obstacle to expansion plans is the lack of access to free collateral. When needed, Indifi makes sure the appropriate financing is accessible.
By matching the profiles of the applicants with the ideal lender, the likelihood of receiving a collateral-free business loan is increased. Availing Indifi’s services makes it easier than ever to expand your company’s marketing activities, take on more orders, buy more merchandise, hire more staff, and upgrade your equipment.
Key Takeaway
The applicant can determine their eligibility for a business loan by checking their creditworthiness prior to applying. Even now, India’s original loan processing establishments are not fully utilising the technologies at their disposal to expedite the procedure. This frequently creates difficulties for a company in a demanding setting that needs immediate cash assistance.
Thanks to technology, Indifi can quickly and easily lend money to e-commerce businesses without the requirement for collateral, saving them time and effort.