Utility of New Age Alternate Finance for MSMEs

By Dr Faiz Askari, Founder of SMEStreet

New Age Alternate Finance, also known as alternative finance or fintech lending, refers to the use of innovative technologies and platforms to provide financial services to businesses and individuals outside of traditional banking systems. This type of finance has gained significant traction in recent years and offers several benefits specifically tailored to Micro, Small, and Medium Enterprises (MSMEs):

Dr Faiz Askari, Founder Editor of SMEStreet.in & Secretary General, SMEStreet Foundation

• Accessibility and Inclusivity: New Age Alternate Finance platforms leverage technology to reach a wider audience, including MSMEs that might not have easy access to traditional banks due to geographical, regulatory, or other barriers. This promotes financial inclusivity and gives smaller businesses an opportunity to access funding that might otherwise be unavailable to them.
• Simplified Application Process: Many alternative finance platforms offer streamlined and user-friendly application processes. This is especially beneficial for MSMEs that might lack the resources to navigate complex paperwork and documentation requirements often associated with traditional bank loans.
• Faster Approval and Disbursement: Traditional bank loan processes can be time-consuming, often taking weeks or even months to get approved. New Age Alternate Finance platforms typically use automated algorithms to assess creditworthiness, allowing for faster loan approval and disbursement. This speed is crucial for MSMEs that need funds quickly to seize growth opportunities or address urgent operational needs.
• Flexible Repayment Options: Alternative finance often provides MSMEs with more flexible repayment options, such as revenue-based repayment or shorter-term loans, which can align with the cash flow patterns of these businesses. This can help prevent overburdening smaller enterprises with rigid repayment schedules that might not suit their revenue cycles.
• Customized Financial Solutions: Fintech platforms can leverage data analytics to create tailored financial solutions for MSMEs. By analyzing a business's financial data and performance metrics, these platforms can offer personalized lending options that match the specific needs and growth trajectories of different MSMEs.
• Collateral-Free Financing: Traditional banks often require collateral as security for loans, which can be a major barrier for many MSMEs that lack significant assets. Many New Age Alternate Finance options focus on assessing the creditworthiness of a business based on its financial health, transaction history, and other data points, reducing the reliance on collateral.
• Data-Driven Decision-Making: Fintech lenders use advanced data analytics to make lending decisions. This can lead to more accurate assessments of credit risk, potentially allowing them to offer loans to MSMEs that might have been deemed too risky by traditional banks.
• Leveraging Non-Traditional Data: Fintech lenders can incorporate non-traditional data sources, such as social media activity and online sales data, to evaluate the creditworthiness of MSMEs. This approach can be especially advantageous for businesses with limited credit history but strong online presence.
• Marketplace Models: Some alternative finance platforms operate as marketplaces where multiple lenders compete to fund MSMEs. This can result in more competitive interest rates and terms, giving MSMEs better options to choose from.
• Tech Integration and Automation: These platforms often offer integration with accounting and other business software, making it easier for MSMEs to manage their financial information and apply for financing without manual data entry.

In conclusion, New Age Alternate Finance brings numerous benefits to MSMEs by addressing their specific financial needs and challenges. It promotes inclusivity, offers faster and more flexible funding options, and leverages technology to create customized financial solutions. However, it's important for MSMEs to carefully evaluate the terms and conditions of these platforms and choose the ones that best align with their business goals and financial health.