Technology can help enterprises get loans faster

Despite the Government’s initiatives, such as goading banks to diversify their portfolio, setting up a ministry, establishing dedicated stock exchanges, the problem still persists.

By Muqbil Ahmar

Don’t we all know the running around and hassles involved in getting a loan sanctioned? Isn’t getting a loan approved one of the hardest things on this planet? It is even more difficult if you happen to be a small or medium entrepreneur. And in certain critical situations, it is almost impossible. Let’s take an example: Suppose you need to process payroll as it is end of month, but can’t as payments from clients are due next week. But you can’t apply right away as it is a holiday. With the bank’s processing taking a few more days, your deal may not see the light of day. Is it possible to get the loan sanctioned directly and immediately? Yes, it is. Modern technology has made that possible.

Getting financial assistance is still a big problem for enterprises
Access to financial assistance is the biggest challenge that enterprises in India face today. Despite the Government’s initiatives, such as goading banks to diversify their portfolio, setting up a ministry, establishing dedicated stock exchanges, the problem still persists.

“Getting credit for our operations is a big hurdle. Banks are reluctant to provide credit to us due to the track record of some enterprises, which have become insolvent over a period of time,” said M M Mahindrakar, an entrepreneur from Aurangabad.

According to a study done by the International Finance Corporation, in collaboration with the Japanese government, said that SMEs in India require Rs 32.5 trillion in financing. Of this, as much as 78 per cent comes from non-regulated sources or is self-financed whereas only 22% is provided by financial bodies. One of the reasons is that the process of loan application and approval is time-consuming and tedious. Similarly, according to a survey conducted by Deskera, a cloud-based business software provider in the Asia-Pacific region, 70% SMEs still feel that gaining access to credit is a tough nut to crack.

With the advent of modern technology such as Enterprise Resource Planning (ERP) software, businesses can get loans sanctioned swiftly and without trouble from banks. The ERP keeps track of key monetary transactions of a business: invoices, inventory, account receivables, balance sheet, etc. It keeps a record of business resources—cash, raw material, production capacity—and the status of business commitments: orders, purchase orders, and payroll. If the ERP is integrated with the bank’s accounting system, it will make the data available to the banks. Thus, banks would be in a better position to take informed decisions. On the basis of the data, they would also be able to predict when and how an enterprise will start losing traction, weeding out wilful defaulters. Banks can monitor the finances of an enterprise in real time if they are red-flagged.

Trust deficit between banks and enterprises
There are several reasons for the gap between loan demand and supply. First, an enterprise, particularly small and medium ones, is an unknown entity for a bank as it doesn’t know an SME in terms of who its customers are or how many employees are there on its payroll. Typically, in the West, the payroll data is an important piece of the puzzle. If a bank can see how many actual employees an SME has, it can make an accurate calculation of the enterprise. It is also a good measure of how good or big a company is.

Moreover, banks in India are incentivised to give as much loan as possible to as few people as possible. It’s plain common sense. It’s easier to operate, therefore banks end up giving loans in big chunks: so, a bank would rather give the loan to one guy than to four other guys because it is means less headache, although data shows that it is better to give loans in small chunks. For example, it is better to give a loan of Rs. 1 crore each to 400 people than giving Rs. 400 crore to one person, who can just disappear overnight. According to a global study, compliance rates are high when loans are given in small portions. What the banks are doing is the exact opposite of what is prescribed: banks should give as small a loan as possible to as many people as possible. But then it would mean that much more operational hassle for banks, therefore they shy away from such a broad-based approach.

Bringing banks and enterprises together, the technology way
Keeping in view the significance of the ERP in ensuring transparency and accountability, banks can mandate ERP as a requirement for disbursal of loans to enterprises. ERP providers too can introduce this feature; in fact some already have this facility.

“With the help of a Cloud-based ERP, any enterprise can quickly apply for a loan if that software is integrated with the bank’s system. The software will also solve critical issues such as NPAs or bad loans and paucity of funds for SMEs. The ERP will also provide real-time visibility into an enterprise’s operations,” said Shashank Dixit, CEO, Deskera, a cloud-based ERP provider in the Asia-Pacific region.

Financial bodies can utilise the ERP’s digital platform for validating the loan request of a business. For instance, Sunrise Chemicals is expecting payment next week but urgently needs money to pay suppliers. But since it is a bank holiday and due to the long authentication process, it would be a few days before the funds are sanctioned. The enterprise could apply for loan through ERP and get a timely authorisation from the bank.

“Availing loans through a software is a good step and will facilitate the process of applying and getting loans. It would also cut down on the tedious loan approval processes, making it hassle-free,” said Yuvraj Singh, an entrepreneur from Bathinda running a supply chain enterprise.

Win-win for both banks and enterprises
Information available through the ERP could help banks evaluate if the company has been meeting its obligations on time. Evidence of monetary discipline would encourage banks to offer loan at lower interest rates to SMEs.

“This is a refreshing idea. Banks can integrate with the existing enterprise software and access the financials of an enterprise. It will rid us of the tedious process of verifying the claims of individual enterprises time and again,” said a senior bank official of a leading Indian Bank.

The author is Technology Evangelist, Deskera (Run Your Business Blog).

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