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Business Loan Index- What you need to know?

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Over the years many startups, as well as small businesses, have been set up in India. This trend has increased the demand for short-term and long-term business loans. Businesses require working capital to maintain operational expenses such as employee wages, purchasing machinery, restocking inventory and improving processes.

There are many lenders in India such as banks, NBFC’s, financial institutions and Digital platforms which cater to the fund requirements of every kind of business by providing working capital loans. Also, with the developments in technology lenders have employed digital servers to make Loan processing fast and simple.


Business Loan Index
Borrowers (i.e. businesses) can file a loan application online and submit the required business documents. After which the loan processing takes place, and after approval, the loan amount is disbursed into the borrowers account within a few working days.

In order to analyze the approval rate of Loan applications, credit agencies make the use of a financing tool called Business loan Index. In this article, we will unveil everything you need-to-know about business loan index along with helping you choose the right lender.

What is Business Lending Index?

A business lending index helps lenders to assess the approval rate of business loan applications placed by borrowers. It takes into account loan application data provided by lenders such as banks, NBFC’s, financial institutions, and digital loan providers. Business Lending Index is a great indicator of the economy. As more loans are provided to businesses it will ensure their survival which will, in turn, promote the economic growth of the company. In addition, it also helps to provide a clear picture to the lenders so that they can adjust their loan rates and approval process to meet future demands for capital.

The index is generated on a monthly basis (over the past 30 days) and assesses data from loan providers all over India. Since small ventures are most affected by economic changes. It also helps to identify the growth and stability of businesses.

The index is published in major finance magazines, newspapers and online finance platforms like The Financial Express, The Outlook, Money life India and The Finapolis. Publishing takes place in 3 stages:

  • Initial Publishing- It includes data about the most recent loan approvals
  • Revised Format- This version is released after the initial format and includes approval data of an entire month.
  • Final Format- This is the final revised data of approved loan applications for the entire month, and it is printed at the end of the month.

What is Small Business Delinquency Index?

A small business delinquency index (SBDI) is similar to a Business Loan Index. But it measures the total amount of loans that lenders grant to businesses on a monthly basis. Before providing working capital loans, lenders try to assess the financial stability, credibility, and goodwill of a business. Knowing these details helps a lender to avoid lending risks associated with borrowers. This is where a small business delinquency index comes in handy and provides detailed information about a business (i.e. prospective borrower).

Apart from this it also helps to provide useful information to financial analysts, executives, economists, and market regulators. This information helps them set lending policies and fix loan rates. Thus, both Business loan index and small business delinquency index are important for the loan industry in our country.

Types of Loans available in India for small businesses:

 

  • Commercial Term Loans:

These loans are provided by banks and businesses must have a high credit score to avail them. The loan approval process can take up to 6 months or longer. But once it is approved by the bank, borrowers can get interest rates between 6 to 8% which reduce the total loan amount as well as EMI’s on loan. A loan can be taken for short or long periods, but startups should avoid long-term loans as a business is unpredictable. Also, such loans require collateral which could be any business related asset.

Lastly, the choice of the lender also plays an important role while taking these loans. Big Banks have rigid rules about lending. While small lenders can provide flexible funding to build strong credit bonds.

  • Line of Credit for Business:

A line of credit is similar to a credit card facility.  Businesses can avail a specific credit amount, and they only have to pay for what you have utilized. Let’s say for example A business gets an approved credit of INR 10,00,000 and only utilizes INR 5,00,000 in the first month for renovations; then its only has to make payment for INR 5,00,000 (i.e. the amount it had withdrawn). In addition, it is continuous in nature. As businesses make regular payments, they can avail more credit each month to withdraw upon for their business expenses.

The only downfall with these types of loans is their interest rates. Since it is a flexible lending mechanism, banks impose higher interest rates, and small ventures might not be able to borrow a huge sum at once.

  • Small Business Loans

Small business loans are provided by various lenders like NBFCs, financial institutions, and Digital lenders. Through them, SME’s can avail guaranteed funding at less or no collateral. They have low-interest rates and allow the applicants to cover less than 20% of the down payment.

There are different types of lenders available in the market such as banks, NBFC’s, financial institutions, and Digital lenders. One of the fintech firm is Indifi which is a digital lending platform and provides customized loan solutions to meet every ventures business requirements. Everything from their loan processing to loan approval is digital, so funds get credited into the borrowers account within a few days. Apart from this they also produce a monthly business lending report to assess the approval rate of their loans. So by choosing them as a loan provider, you can avail the full package of loan benefits.

 

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Denise Mitchell
Denise Mitchell is a professional blogger and Co-founder of freespaceusa.com. She is a part-time blogger, well acclaimed for his blogs on topics like - lifestyle, health, travel, fashion, entertainment and much more. She is read by thousands of people daily from around the world.

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