What is UBL and how we underwrite it

The SME sector in India is large and burgeoning. It contributes 45% of the industrial output and 40% of exports, and employs over 40 million people. With rapid economic growth and the impetus being given by the Government, this sector is expected to grow at a phenomenal pace, from accounting for 15% of India’s GDP in 2015 to 22% in 2018.

SMEs need funding

Despite its enviable growth, the smaller merchants and retailers face chronic cash shortage. Traditional banking offers more challenges than solutions to such enterprises. They are faced with long approval periods, demands of collateral, unsurmountable eligibility criteria and loan terms that are unsuitable to address short-term cash flow issues.

Unsecured Loans Provide the Relief

This is where unsecured loans come to their rescue. These are typically shorter-term loans that do not require collateral or guarantors. Some financial solutions are specifically designed to aid SMEs to address their working capital needs or expand their existing business. SMEs often work with limited resources and may find it challenging to pledge collateral to secure a loan. Unsecured business loans prove to be highly beneficial in this regard.

The Greatest Challenge to Overcome

Since unsecured loans by definition have no collateral to back them, a stringent underwriting process needs to be in place to ascertains the applicant’s intent and ability to repay the loan. The loan underwriting process must include the collation and verification of all the data provided by the applicant. This information is analyzed to determine the financial health of the enterprise and the creditworthiness of the individuals most closely associated with the business.

Relying on Cutting-Edge Technology

At Capital Float, we deploy cutting-edge technology to ensure that the process of loan approval is smooth, seamless and swift. This data driven process begins with the loan seeker filing an online application and uploading/giving access to all the relevant documents, including the company’s ITR, sales figures, balance sheet and cash flow statements. Our systems pull the data automatically from various external sources and populate the relevant fields. Capital Float lays specific importance to digital data available in the eco system e.g.; telly ledgers and purchase ledgers.

Apart from the documents provided, weightage is given to company ratings provided by rating agencies like CRISIL and ICRA. The bureau data is used extensively which goes beyond CIBIL scores and looks at hundreds of variables which might predict customer behavior.

The system collates all this information and draws up algorithm-based scores for each business. This initial screening process has no human intervention, since the technology is intelligent enough to identify a risky borrower and reject an application that does not meet the minimum criteria. All this is done in a matter of five minutes; whereas traditional banking could take anywhere between one to three months to decision a loan.

Once an application clears the first screening, experts from Capital Float visits the company’s premises, which could be the registered office or the factory. The experts spend time to understand the business model, the processes, the production capacity and the utilization of existing resources to gain a deeper insight into the health of the enterprise.

These inputs are also entered into the system, which uses powerful algorithms to analyze all the data being collated. These algorithms aid credit managers to take a more informed decision regarding loan approvals.

Thus, with the help of ground-breaking technology, Capital Float is able to approve loans in less than a week, while also ensuring NPAs remain exceptionally low.