When in an urgent need for emergency finances, loans pose to be a striking option for individuals in need of fast liquidity of assets. However, for the self-employed getting loans from banks usually, become a problem. Simply put, self-employed do not have a fixed income, but they are the owners of their businesses. Hence, while trying to get a loan, not having a fixed income becomes problematic for businessmen seeking loans. It also gets difficult to track their credit score and credit history. Which is why it is difficult to get a personal loan by the self-employed.
Prashanth Ranganathan, founder, and CEO, PaySense, says, "India is a country of small businesses and self-employed people make a large part of our population. They also have the need for personal loans be it for their personal needs or for their businesses. Today for a self-employed customer to get a loan from traditional financial institutions tends to be difficult." To help companies and individuals facing such situations, various fintech start-ups are now partnering with the business owners and self-employed individuals to solve their finance issue.
However, industry experts suggest one should do thorough research of these platforms, and make sure they are trustworthy before opting for a personal loan and getting immediate access to funds for businesses and other requirements.
According to data by PaySense, a consumer lending platform, they have witnessed 42 per cent of their loans going to the self-employed from across the country in the month of September 2019 – the segment which is generally less than 10 per cent of a financial institutions' consumer lending books.
To get a credit for a self-employed customer, from traditional financial institutions not only tends to be difficult but also is a lengthy process. The documentation and physical requirements such as the customer’s entire business financials documentation (ITR, company bank statement, personal bank statement, etc) and physical checks, telephonic and physical interviews, become overwhelming and are generally applied no matter how small or large their requirements.
The credit offered by these fintech companies is in a customized manner, wherein their personalized line of credit is similar to a personal loan. The fund can be used for various purposes, for instance, to make instant purchases, be it online or offline, through affordable EMI plans.
The approval process for these fintech companies, as compared to banks, is quite simple. Ranganathan, says, "With data points that are easily available to customers, we access them. And with the efficient digital process, we handhold and assist these customers, especially since many of them are taking credit for the first time." He further adds, "This way this self-employed gets access to structured, affordable credit, instead of having to access credit from local moneylenders, borrowing from friends or family. This also helps them build their credit history and maintain a good credit score."
Features of instant personal loan from these fintech companies;
- While the lower limit of the loan amount ranges between Rs 3,000 to Rs 5,000, the upper limit of credit disbursed is generally between Rs 2-5 lakhs.
- Most of these players offer personal loans to individuals with low or no credit history.
- Documents needed are either Aadhaar card, passport, PAN card as identity proof, address proof, and last 3 months bank statements, as income proof, along with a photograph of the borrower. The required documents are also collected from the borrower’s doorstep if needed.
- In case of a subsequent loan, no documentation needs to be provided by the borrower.
- Most of these companies also come with EMI plans, with payment reminders and auto-debit features.
- The interest rate generally ranges from 18 per cent to 36 per cent.
- Most of these companies also come with processing fees of 2-3 per cent, along with foreclosure or prepayment charges which usually ranges between 4-5 per cent on the principal outstanding amount.
- For self-employed, to get a loan approved the minimum monthly earnings generally range from Rs 15,000 to Rs 20,000.