Small businesses and MSMEs depend on a steady cash flow to handle critical situations like inventory shortages, machinery breakdowns, supply chain issues, and sudden market changes that affect demand and supply. To keep operations running smoothly, they may need to explore new markets, expand their reach, or invest in the latest technologies and products. These steps require capital, and a gold loan is the smartest choice for fuelling business growth.

Unlike multinational companies, small businesses rely on their own cash flow for growth, which often requires additional capital. Unfortunately, many MSME owners struggle with a lack of timely and affordable financing, leading to repeated rejections from traditional lenders. Consequently, the lack of timely and affordable financing forces some MSME owners to close their doors and prevents others from expanding.

Gold backing

Can gold loans become a smart credit solution to empower MSMEs to sail through turbulence? Indians have always shown an enduring inclination towards the yellow metal. Today, gold is not merely a symbol of wealth, it is seen as a valuable asset that can fund any financial contingency. Small business owners, particularly those from rural areas, can leverage their inherited gold as collateral to secure funds to pursue their entrepreneurial dreams.

The gold prices have nearly tripled in nine years and reached an all-time high, around Rs.76,000 currently. This itself is the proof of how idle gold is worth more as collateral now. Moreover, the gold loans are not a temporary fix; they ensure sustainable business growth. MSMEs can leverage the transformative power of gold to avail bigger loans and fuel their liquidity needs to address emergencies head-on, ensure smooth business continuity, capitalize on promising opportunities, and propel towards new heights.

What makes gold loans the smartest choice for business expansion

Gold loans offer numerous benefits to MSMEs to support long-term sustainability and success in a competitive business market. A few key advantages of gold loans are:

1. Quick, easily accessible: Gold loans generally require the least documentation, unlike other unsecured loans that require extensive documentation and lengthy approval processes. This reduces the administrative burden and prolonged waiting period, and the small businesses get immediate funding.
2. Flexible purpose: The amount of loan that can be availed is directly proportional to the value of gold pledged. This flexibility allows MSMEs to secure loans that can meet their specific capital requirements whether it is for new machinery, expansion, employee salaries, or other business purposes.
3. Lower rate of interest: Since credit is secured with gold, these loans come with lower interest rates as compared to other unsecured loans, thus proving favourable to small business owners by reducing their overall operational cost.
4. No collateral required: Gold loans are secured loans; the amount is disbursed against the pledged gold. Hence no need for any collateral or guarantor.
5. No Credit Score: There is no need for any credit history or credit score for a gold loan. Small business owners and MSMEs with lesser credit scores or no credit history may often face challenges in obtaining easy financing. However, gold loans are secured against the appreciating value of gold, reducing the risk assumed by lenders and making it easier for MSMEs to raise capital.
6. Repayment flexibility: Gold loans usually offer bullet repayment options, allowing MSMEs to repay the entirety of an outstanding loan amount (including principal and interest) at maturity, which can help MSMEs manage their working capital more efficiently and choose a repayment timeline that aligns with their cash flow.
7. Continued ownership of gold: Although gold is pledged, the borrower retains ownership of the jewellery. Once the loan is repaid, the gold is returned to the borrower, thus ensuring that the small business owner’s valuable family assets that may have been passed down through generations are safe.
8.  Risk of default mitigated: Given that gold loans are secured with a valuable tangible asset having sentimental value, it is a reassurance to both lenders and borrowers, thus fostering a more stable financial arrangement.

Arvog is a new-age, AI/ML-powered, customer-centric finance company that makes digital lending quick, efficient, and easy. We see worth in lending wings to people’s aspirations, hopes and dreams. We believe purpose-driven credit can be a true-life enabler. Arvog is here to lend a helping hand, with affordable loans designed specifically for those who need them the most.

Arvog empowers NBFCs and fintechs with the tools and solutions they need to get fast access to credit, thus building more resilient and confident communities.