For any business in general, and for small and medium businesses, finance is one of the most important aspects under perpetual consideration. After all, money is vital to keep the wheel turning and for the day to day operations to take place without any issues. While large businesses have multiple ways to keep the lights on, small businesses must often rely on loans to take them through lean times, or when money is needed for business operations.
For the past 50 years, small and medium-sized enterprises (SMEs) and micro, small and medium enterprises (MSMEs) have powered India’s economy, especially in rural and semi-urban areas. But they often fail to get adequate financial support from government agencies, banks and financial institutions, according to the SME Chamber of India.
India’s booming fintech market could be their savior.
The startup world may never ride the high waves of 2015 but 2017 proved that big ticket funding is not a thing of the past. After a year of drought in 2016, the stars of the Indian startup ecosystem came back to prove they still possess the confidence of the investors.
However, the downtrend of 2016 did result in substantial cutback on their valuations. While Flipkart ended its drought with $1.4 billion from Tencent, Microsoft, eBay, and Naspers in April this year at a reduced valuation of $11.6 billion (from $15 billion), Ola raised $404 million from Falcon Capital and Softbank Group a few days later at a reduced valuation of $3 billion (from $4.5 billion).
Rising non-performing assets (NPAs), overleveraged large companies and the general unwillingness of banks to lend money has meant small businesses are now finding it next to impossible to raise money. As loan portfolios sour, banks do not want to take the risk of lending to an SME.
Coupled with that is the fact that a large number of small businesses have no access to formal sources of finance, are under banked or have little or no credit history. For these businesses, there is no chance of getting a bank loan. It is with this understanding that a troika of entrepreneurs banded together to start Loan Frame.
A credit score is a major deciding factor for banks to grant you loans and also to decide the terms and conditions on which the loans are to be given. Banks prefer borrowers with low outstanding balances, long credit history and high credit score. A good credit profile and high credit score are viewed positively by lenders. It also puts the borrowers in a position to bargain for better terms and conditions and draw loans at best available rates. On the other hand, it might get difficult to even get loans with poor credit score, leave aside the question of interest rates. Hence, it can be rightly said, “better the credit score, better the interest rates”.
A business may extend credit to its customers for the goods sold & services rendered to them and frame appropriate credit policy suitable to the business. Credit policy indicates the credit period that a company will offer to its customers. A credit policy should not be too liberal that it results in defaults, nor should it be too strict that it restricts sales. Ageing analysis of accounts receivables helps a business in framing an appropriate credit policy and also helps to analyze the category and quality of its debtors.
Surendri Design, a well-known fashion design SME started operations in 2013 with the aim of becoming the preferred shopping destination for women across age groups. The brand has since become a popular name in the celebrity fashion circuit, and showcases its designs at renowned fashion events across the country.
In an interaction with Sujata Sangwan of BW Disrupt, Shailesh Jacob, CEO & Founder, Loan Frame, shared his startup’s journey including idea generation, description, traction details and future goals. Loan Frame is a silicon-valley style Fintech company focused on small and medium enterprise (SME) lending in the Indian subcontinent by building India’s largest technology enabled SME lending marketplace. Loan Frame is providing a technology solution to one of India’s long standing economic problems: availability of credit to Indian SME’s.
Borrowers can apply for a loan by logging onto Loan Frame’s website or by downloading its Android app. The company does detailed assessment of the needs of the SMEs and then provides the right solutions for the SMEs, at the most competitive interest rates
Loan Frame was launched in mid-2016 with the objective of redefining the experience of borrowing by SMEs in India. The Company is India’s first lending marketplace fully dedicated to SMEs. Loan Frame caters to the varied loan requirements of SMEs up to Rs. 50 crores. The company differentiates from its peers with its wide set of lending products to cater to almost all needs of small and medium sized businesses.
Dr. RP Singh is a consulting doctor working at a large hospital based out of Delhi with an entrepreneurial streak. He wished to start a new business, managing lab machines for clinics. Given the large, upfront capital investment required, he needed to get a business loan. However, getting a loan for his start-up at a reasonable cost was proving to be nearly impossible given the absence of a track record and the multi-geography nature of work and collateral.