Digital Lending Vs. Traditional Lending - Who's Winning?

Digital lending has gained tremendous popularity over the years. An amalgam of factors from technology to functional efficiency to usability and accessibility is catalysing this growth.

While traditional banks are still the spine of the entire banking and financial industry in India, businesses greatly benefit from leveraging digital lending.

Top reasons why businesses prefer digital lending

Here are some of the reasons why businesses prefer digital lending over mainstream banks:

1. Application

Getting business loans from banks would require you to visit the branch in person, fill out lengthy application forms, and submit various supporting documents. Even though some banks have the option of filling in the application form online, you would still have to visit the bank at least a couple of times before your loan gets processed.

In digital lending, you need not take time off work to wait in queues. The entire process is done online, saving you time and effort.

2. Documentation

Getting a business loan from a bank involves unending paperwork. You need to fill in forms, get documents attested, submit photocopies, present references, etc. This creates unnecessary hassles, as the process is extremely tiresome and time-consuming.

With digital lending, the paperwork is cut significantly. All you have to do is provide scanned copies of a few critical documents, like address proof and identity proof. And that’s it!

3. Processing and disbursal time

The processing and disbursal time is another significant difference between traditional lending and digital lending. When you apply for a business loan with a bank, the wait to get it cleared and processed can sometimes be endless. Banks take weeks and sometimes even months to process loan applications and disburse the required funds.

Digital lenders, on the other hand, process loan applications within hours, and the funds reach your bank account within a few working days, mostly just two to four days. This is highly ideal, especially for small business owners and start-ups when they want funds on an urgent basis.

4. Eligibility

The eligibility for loan disbursal in banks is determined by diverse factors like your employment history, current income, assets, housing, and above all, credit score.

While digital lenders also consider your income and credit scores, they look at other factors like your social media authorisation, education levels, professional background and potential future earnings to determine your creditworthiness.

5. Flexibility

Digital lending platforms offer a flexible credit line that could range anywhere from Rs. 25,000 to Rs. 10 lakhs. These are usually considered small-ticket loans by digital lenders. Additionally, you can repay these loans through flexible and affordable EMIs over a period ranging from 2 to 36 months.

On the other hand, banks usually consider loans below Rs. 1 lakh as a high-risk proposition.

6. Lenders

In the case of digital lending, you will have access to various lenders simultaneously and can compare deals before settling on the best-suited loan from the comforts of your home.

This is not the case with the conventional lending method, where you have to visit various banks many times to get all the information.

7. Technology

Traditional lending is often tricky due to clunky, outdated systems and technology. Most banks grapple with legacy infrastructure and are unable to deliver products and services with ease and agility. Factors such as heavy UI, complicated user flows and poor customer tech support for queries compromise the efficiency and effectiveness of banking operations.

Technology application in digital lending can be seen at each stage of the customer journey, where every customer interaction is optimised. Interfaces are seamless, intuitive, easy to use, yet functionally rich.

Summing up

In today’s commercial lending landscape, online lenders continue to gain ground over traditional banks.

Digital lending comes with various added advantages in comparison to traditional banks. Digital lending is, indeed, a boon for new borrowers, especially small business owners and start-ups that don’t make the cut at traditional banks.

Instead of spending time in queues and handling tons of headache-inducing paperwork, look around and simplify your loan processing at online lending platforms.