Impact of digital lending on SME cash flow

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Digital lending is the new buzzword in town, with both the numbers of loans and the total disbursement amount seeing sharp growth during Q2 of the current fiscal year. According to a report by the FinTech Association for Consumer Empowerment (FACE), there has been a 149% growth in loans disbursed from Rs. 65.56 lakhs during Q2 FY22 to Rs. 162.95 lakhs during Q2 FY23.

A credit expansion like this indicates the power of financial technology to seize previously untapped opportunities via digital lending. As the demand for business loans grew 1.6 times higher than the pre-pandemic levels, both the government and lenders opted for the digital route to ease access to working capital.

However, a little-known or rather discussed topic is how digitization has actually helped SMEs improve their cash flow as well.

It takes a lot of effort to get a business off the ground and functioning, and everyone knows that cash flow is the lifeline of any company. Every business owner understands the critical role that cash flow plays in the success or failure of their company.

According to experts, a company’s trajectory (crash or float) is mostly determined in its first five years of operation. The article poses the topic of why some businesses, despite a solid start and sufficient funding, perish during the first five years of operation.

Any guess as to why? The answer lies in the cash flow of the company. Unstable cash flow is a major factor in the failure of a small or medium-sized enterprise.

In this article, we discuss the importance of a positive cash flow for a small business and how digital lending is helping businesses across the country to maintain a steady balance.

 

Key takeaways

What helps make cash flow stable?

What is the impact of digital lending on SME cash flow?

 

What helps make cash flow stable?

For maintaining a positive cash flow, access to affordable formal credit is a must. However, for a wide range of businesses in India, especially sole proprietorships and other similar-sized enterprises, borrowing money from traditional financial institutions is challenging.

FinTech platforms that facilitate digital lending have the potential to significantly bridge this funding gap and have already altered the way small businesses gain access to credit.

What is the impact of digital lending on SME cash flow?

While traditional lenders are hesitant to lend to SMEs due to their unstructured financial documentation, modern FinTechs help small businesses to digitize their financial operations, help them maintain a positive cash flow, and access uninterrupted working capital.

Funding for organizations is made easier

The application procedure for a traditional loan is time-consuming and cumbersome. The digital lending process has removed this barrier, and due to the reduction in red tape associated with getting a business loan, small and medium-sized enterprises (SMEs) can now speed up the expansion of their operations. With applications like UpScale, FinTechs are making the lending space much more dynamic.

Improved and more efficient invoicing procedures

With more efficient and user-friendly invoicing options available, businesses of all sizes can flourish. An efficient management system helps to save businesses from revenue losses or the accumulation of bad debt. It also helps businesses efficiently collect payments from customers, wherever they may be located, and in whatever currency they may be using.

Digital lending overcomes geographical limitations

There is no restriction on where you live when applying for a loan through digital lending because the entire process takes place online. As a result, both transaction costs and opaqueness are mitigated.

Technologies like AI and ML clear the roadblock of poor financial inclusion

Artificial intelligence and machine learning-based FinTech platforms use cutting-edge technology to assess business creditworthiness and identify all other potential risks associated with lending, guaranteeing safe investments. Digital lending led by FinTech platforms could change the financial system in a big way by offering a wide range of financial services at low prices.

Customer acquisition costs are extremely low

The costs of acquiring new customers and processing loans on FinTech platforms are significantly lower than those of banks and other traditional lenders. To better serve their customers, digital lenders have digitized the entire loan lifecycle, from the initial application to the final payment. This has enabled not only efficient cost management but also a streamlined approach to satisfying customers.

 

The bottom line

 

Many great advances have been made in the fields of payments, inventory management, invoicing, cost reduction, etc., thanks to the innovations made possible by FinTechs in the digital lending process. This allows businesses to serve customers regardless of location, which was not possible earlier.

Numerous FinTech features are now embedded in standard business procedures, greatly assisting small and medium-sized enterprises (SMEs) with cash flow management. So, digital lending can make a big difference for businesses because it allows them to use technology to keep a positive cash flow even when the economy is bad.

At UpScale by CredAble, we not only help businesses secure working capital via digital lending but also help them manage their cash flow better. Visit our website or write to us at help@upscale.cash to learn how we can help your business.

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