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We have stated brief reasons for credit declines in our previous article about “Why business loan applications get rejected” . Today we will talk about one of the most important criteria for Lenders and Banks that is used to judge business loan applications — the Vintage of the loans.
What exactly do they mean Vintage?
Why do Lenders care for Vintage?
Government of India as well as the State Governments are giving all out thrust for extending financial assistance in the form of need based Bank credit to MSME segment considering the potential of this segment to contribute to our GDP as well as for creation of more employment opportunities. Not only existing MSME units have to be considered, more and more new units for their creation have to be assisted, thereby increasing the total number of MSME units. In this context, as our contribution to the national objective of achieving democratization of Finance and financial inclusion of down trodden, FundsTiger extends their helping hand to the intending borrowers in the MSME segment to get timely and need based credit support for them from the willing Lenders. Approach us at www.FundsTiger.com for needful advice.
On the other hand, we have observed reluctance by the Lenders in financing the credit requests not having required vintage.
We find vintage aspect assuming more importance than even securities for loans. Loans without tangible securities are seen sanctioned in cases where vintage reveals good credit history but where required vintage is not there, lenders hesitate to finance. Vintage creates confidence about the safety of funds lent to the project. That gives opportunity to gather realistic details about the potential of the unit to achieve planned performance [mainly financial] results so that same trend which is likely to continue in future during loan repayment period can assure safety of loan lent beyond doubt.
Credit seekers for projects not having vintage details to furnish still have to depend upon own funds or borrowing from friends and relatives or borrow from private lenders at higher cost to start their venture than forgoing good fortunes of the venture. Once they create good performance history for minimum three years, build acceptable records to prove the same, they have wide avenues for accessing low cost funds from Commercial Banks and enlarge scale of operation. Till institutional lenders extend helping hand to the new entrepreneurs, above seems to be the only way out for starting new units. This is a serious lacuna which all concerned agencies have to join together and take remedial steps for increasing the number of MSME units. Increasing CGTMSE guarantee settlement percentage to 90%for startup units at least for initial 3 years of commencement may remedy the situation. We have talked about CGTMSE schemes in our previous article.
Note that there are various other types of loans like Invoice Discounting, Loan against property or some security/collateral like Machinery or Equipment or Project Finance that are also available to the borrowers which we would touch upon in future articles.
Chief Credit Expert