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.
Founded in August 2015, Loan Frame is a fintech SME lending marketplace focused on solving the financing problem for millions of small and medium enterprises (SMEs) in India. Loan Frame enables SME lending through partner lenders, by providing them the technology to efficiently originate and assess small business borrowers.
- Shailesh Jacob, Founder and CEO
- Rishi Arya, Co-Founder and CFO
- Akshun Gulati, Co-Founder and Head Corporate Development
Start date: January 2016 | Location: Gurgaon | Fund Raised since starting up: $2.25 million | Employees: 30+
In the last couple of years, the alternative lending space has literally exploded. With the growing shift to digital, fintech companies are leveraging technology to innovate and disrupt traditional business models.
Founded in 2015, loan aggregator firm, Loan Frame is one such innovator which has found a unique niche to operate in – a niche which offers value alike to funds-starved small and medium enterprises and the banks and financial institutions.
Here, in a chat with ETCFO’s Mannu Arora, Rishi Arya, CFO and Co-Founder & Shailesh Jacob, Co-Founder and CEO, of the Gurugram-based online lending firm take a few questions about the finance function especially in start-ups, fintech and their business too.
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.
Whenever an SME (Small And Medium-Sized Enterprises) business wants to get business loans, it can get very frustrating because most of the qualities required to get the loan are structured with big businesses in mind. This is understandable because financial institutions would like to plug into developing companies but they do not want to bear a large proportion of the risk that comes with this move. It is, therefore, a common trend that SME businesses in India have limited options when it comes to capital financing. However, this is not only particular to India as developing countries also face these impediments.
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.
Debt service coverage ratio is a ratio commonly used by lenders to assess to the credit worthiness and financial health of a business. It gives a comfort to the lenders if the company generates sufficient cash to pay off its current portion of debt as and when due. Before putting any funds in a business, the lenders also need to be sure that their money would be safe and would indeed be repaid in time. Debt service coverage ratio serves the purpose.
Profitability ratios indicate the company’s ability to generate revenues over and above the operating expenses of the company during an accounting period. Of all the profitability ratios, Net profit margin is the most closely followed ratio by the shareholders.