RBI Governor Talks SME, Receivables Finance

Since his appointment last year, Raghuram Rajan has been making the headlines for all the right reasons. But beyond his interventions in currency markets and the macroeconomy, a steady stream of pronouncements from the RBI Governor on potential priority sector reforms should give the SME sector in India much to cheer about.

In his inaugural address, Rajan specifically highlighted the importance of SME finance in spurring growth across the broader economy:

As the central bank of a developing country, we have additional tools to generate growth – we can accelerate financial development and inclusion. Rural areas, especially our villages, as well as small and medium industries across the country, have been important engines of growth even as large company growth has slowed

He went on to endorse receivables financing as a key policy tool to unlock timely credit to SMEs and address the massive working capital gap in the sector today:

For small and medium firms, we intend to facilitate Electronic Bill Factoring Exchanges, whereby MSME bills against large companies can be accepted electronically and auctioned so that MSMEs are paid promptly. This was a proposal in the report of my Committee on Financial Sector reforms in 2008, and I intend to see it carried out.

On a cautionary note, it is worth noting that this is not the first formal RBI pronouncement in recent times advocating factoring or receivables-based financing as a financial inclusion tool for the SME sector. In fact, the RBI has signaled a steady commitment in recent times to SME credit growth, but its policy directives have frequently not translated into real priorities for public and private sector banks operating on the ground.

In 2013, IFMR reported that 16 out of 26 public sector banks had failed to meet their priority-sector lending (PSL) targets. Half the private sector banks also did not reach their targets, bringing the total shortfall in priority-sector lending in 2013 to USD 28 billion.

Despite these hiccups, Mr. Rajan’s strong words and visible proactivity since coming into office suggest that the RBI may embarking on a fresh chapter of promoting innovation to further financial inclusion for priority sectors. If recent sentiment across capital markets is any indication to go by, the consensus is that this Governor means business. This is good news for innovators trying to bring new and disruptive business models to sectors that have traditionally been starved for credit. But for entrepreneurs in these sectors, it could mean something more transformative – unprecedented access to an entirely new set of institutions, tools, and financial products more finely attuned to serving their business requirements and financing needs.

(Image credit: Business Today Aug 12, 2013)

More Related Posts

Card image cap
Capital Float: Banker For Small Businesses – Livemint

Written by Shrutika Verma

Sandeep Bindra, the New Delhi-based e-commerce merchant who runs Pathways Marketing and Consulting Pvt. Ltd is the official distributor of consumer electronics brands such as Havells, Godrej, Usha and Symphony coolers for large e-commerce marketplaces such as Flipkart.com, Snapdeal.com and Amazon.in. Two months ago, Bindra ran out of money raised from family and friends and his pleas for debt for his two-year-old company were not entertained by any bank. “They (banks) ignored us as they do not consider companies that are less than three years old,” said Bindra. With the festival season round the corner, he needed immediate cash to sustain the fast-growing sales online. That is when Bengaluru-based start-up Capital Float came to his rescue.

Founded by Sashank Rishyasringa and Gaurav Hinduja, alumni of Stanford Graduate School of Business, Capital Float is a new-age lending solution that operates online and offers unsecured loans to start-ups, manufacturers and e-commerce merchants such as Bindra. Set up in 2013, the company has already lent to more than 70 borrowers and has disbursed over Rs.20 crore. Run by Zen Lefin Pvt. Ltd, Capital Float is modelled after Atlanta-based Kabbage, which recently raised $50 million from Japan’s SoftBank.

Hinduja, born and brought up in Bengaluru, initially joined his family’s garments business under Gokaldas Exports that was sold to private equity firm Blackstone in 2008-09. He later studied business management at Stanford where he met Rishyasringa. Rishyasringa, 30 looks after finance, business and product development while Hinduja, 32, handles sales and operations. Since inception, the company has grown rapidly and has attracted a total funding of close to Rs.24 crore from SAIF Partners and George Soros’s Aspada Investment. The start-up is drawing the attention of investors and small businesses as it offers fast, affordable and flexible working capital loans, an alternative to traditional lending institutions such as banks, chit funds and local money lenders.

Currently, it lends money to companies that are more than a year old. The amount of fund offered is between Rs.3 lakh and Rs.1 crore. Interest charged on the loan varies and is in line with banks and non-banking financial companies (NBFCs). Bindra, for instance, borrowed a sum of Rs.20 lakh at an interest rate of 18.5%.

Unlike traditional banks, Capital Float lends money to small businesses that might not have collateral, significant revenues or years of experience. But the company does not disburse loans blindly. It employs unorthodox techniques, including psychometric tests to run checks on its clients, gauages their social media reputation, and grills them on business decisions and entrepreneurial skills before lending.

According to Bindra, companies such as Capital Float take away the human element from the process of money lending and make it more data-driven with an algorithmic approach to evaluating whether the business can stand on its feet or not. “In India, a lot of access to finance is based on who you know and how good is your relationship with the branch manager of a bank,” says Bindra.

Agrees Mridul Arora, vice-president at SAIF Partners, “Lending is currently dominated by banks. However, the SME (small and medium enterprises) space is underpenetrated and given the demand perspective, a company like Capital Float has a huge potential.” Arora says online lending business makes economic sense too and counts Capital Float’s access to proprietary data from e-commerce companies as one of its strength.

Rishyasringa says the company started focusing on e-commerce as the sector was buzzing and banks failed to see the opportunity. Today, there are several thousand manufacturers who either sell directly to e-commerce portals or they sell on marketplaces. Capital Float tied up with Flipkart, Snapdeal and Myntra to meet their vendors and understand their requirements. Soon, the company realized that these small businesses were unable to grow because of working capital challenges. Today, Capital Float works with most e-commerce marketplaces and is also a part of Snapdeal’s Capital Assist, a service to provide capital assistance to small sellers.

“When we started digging into entrepreneur finance in India, the scale of the problem was staggering. Today, there is about $140 billion of formal debt provided to SMEs by banks and NBFCs but the unmet need is another $200 billion,” says Rishyasringa, who worked with consulting firms in India and in New York in the financial services and technology space before founding Capital Float

Rishyasringa calls it the “missing middle problem” that he and his partner are trying to solve in the country. “If you are a large or a mid-size corporate, banks will line up outside your door. If you are a rural farmer or artisan, the MFIs will queue up to lend you, but if you are in this missing middleRs.50 lakh to Rs.20 crore turnover range, then there are not many options available,” he explains.

Today, India has more than 30 million registered SMEs and about 35% of these are ineligible to receive any financing from banks or NBFCs. “They look at your financial statement and bank statement but there is lot more which can make these companies underwritable,” says Hinduja.

The idea to start Capital Float struck the duo during their second year at Stanford after brainstorming sessions with their professor and mentor Baba Shiv. “Nearly 10 ideas were shot down before Capital Float was conceptualized,” said Shiv, a director at the Strategic Marketing Management Executive Program at Stanford and an adviser on the board of several companies, including Capital Float. Shiv recalls how the two friends were close to developing something in the taxi services space when they discovered firms operating similar businesses.

The company today takes seven to ten days to approve a loan, which it hopes to bring down to three to five days soon. Companies such as Kabbage take only seven minutes to approve a loan in the US. However, Hinduja does not believe that a company in India can get there because of the risk involved and the lack of data available around a start-up or an entrepreneur.

To be sure, Capital Float is not the only firm in this business. It faces competition, albeit from smaller companies, such as Capital First, NeoGrowth Credit Pvt. Ltd and SMEcorner.in. A lean operation, Capital Float employees 30 people.

The company’s progress is hardly a surprise given the teamwork and similar passions of its founders. For a start, both swear by Jeff Bezos’s biography The Everything Storeas a life changing book. “We can relate to the book at professional and personal levels,” they say. Both want to get into politics at some point. “We want to solve the policy issues and see ourselves in some policymaking roles. We left the (Silicon) Valley and came to India to solve some of the problems people here face,” says Rishyasringa.

Between table tennis matches at their Bellary Road office in Bengaluru, the founders plan to make Capital Float similar to OnDeck Capital (scheduled to go public this month) or the San Francisco-based Lending Club which is all set to raise about $900 million in its initial public offering. The company is scheduled to begin trading on the New York Stock Exchange this week.

These companies not just provide short-term financing but also offer a lending platform to introduce investors and institutions to the ones raising money. “Right now, we are trying to prove to the market that we know how to lend money and we know where our mouth is but we are very quickly starting to convert ourselves into a platform and the pilots have already begun,” said Hinduja.

The question is, how long can the online money lending companies avoid competition from banks? “We are now competing with some of the banks that have realized that e-commerce is becoming an area where they need to get expertise,” says Hinduja.

Among established banks that recognize the trend are Yes Bank Ltd and HDFC Bank Ltd. Both lenders did not comment for the story.

“Companies like Capital Float will not be able to compete with banks at the pricing level whenever they jump into the game. But if these companies execute better and faster they can create a platform to work with banks,” says SAIF’s Arora.

News piece sourced from Livemint. Read the full piece here.

Oct 24, 2018

Card image cap
All You Need To Know About Unsecured Business Loan for Traders

It takes money to make money.” We often hear this adage in the business world, and it does hold true. Even so, maintaining adequate cash reserves to meet the fixed and variable costs can be a real challenge, especially for start-ups and small businesses.

Most of the small and medium enterprises (SMEs) initiate operations with a low level of funds while simultaneously facing competition from established players and dealing with the challenges of seasonal cycles. Consequently, they may not be able to generate the estimated sales volumes.

Even if a venture is performing as per expectations, it may need to make additional investments to hire qualified experts, adopt new technologies and maintain larger stocks of materials/inventory for sustained progress. With experience, SMEs know that a cash cushion is necessary for both survival and growth. An Unsecured Business loan for Traders best offers this advantage.

The Challenge

There are multiple sources of an SME loan for small enterprises, and sincere business borrowers approach a financial institution only when they are confident about and can prove their venture’s ability to pay back in time. Nevertheless, a high number of applications get rejected because these borrowers are unable to pledge financial assets as collateral against a loan.

Not everyone owns huge property. New entrepreneurs often start their operations from rented premises and may not have any significant assets to hypothecate. A secured business loan for traders can also be denied if the lending institution does not deem a particular asset to be valuable enough for the funding.

Solution for Cash Crunch in Business

The Solution

What comes as a relief for business owners is the fact that an unsecured SME/MSME loan is a prominent option for finance, and it comes at significantly more customized terms.

As the digital revolution continues to transform the lending industry, the possibilities of quick funding have only increased for small businesses, and there is an array of SME loan products available to them. A digitally operating FinTech company offers term loans that can be used to buy new premises (shop/showroom/office) or expand the business to new locations. Entrepreneurs can also apply for a working capital loan to continually fuel operations in the low phases of the business cycle.

Moreover, FinTechs offer loan to buy stocks. This facility is particularly helpful for customer-facing ventures such as retail and restaurants.

What is common to all these FinTech credit products is that they are unsecured loans – they can be taken on short notice and without pledging any asset as collateral.

How to apply for a business loan for traders ?

A majority of new-age business managers now understand the lending models of FinTech companies. Those who are still unaware of the concept can always do a quick online search to comprehend it. In brief, a FinTech lending company typically is a non-banking financial company (NBFC) that uses digital technology to make financial solutions quicker to access.

A business loan for traders is highly sought by small enterprises. Any Pvt Ltd (private limited company), LLP (limited liability partnership firm) or Sole Prop (sole proprietary company) can approach FinTech lenders for unsecured business loans.

While the exact eligibility criterion differs as per the kind of SME loan applied for, the principal requirement is the operational business history of at least one year. Pursuant to the rules of the money market, this stipulation is necessary to show that the business owners are genuine and have been running the company for some time.

To qualify for the requested amount, a business with active operations should also show its commitment towards tax compliance. It should also have a precise idea of its loan requirements. This not only helps the borrowing organisation to increase its chances of getting an approval for the credit, but it also makes it convenient to choose the right type and term of the loan.

Anyone applying for a business loan for traders should understand the cost of the loan upfront. When a FinTech is approached for such an investment, this cost includes the interest rate and a nominal processing fee that is usually less than 2% of the borrowed amount.

The application process is entirely digital, and that makes it shorter than the overwhelming procedures of visiting a traditional lender, printing multiple copies of documents and then staying in suspense for weeks to get the required amount.

Applying for a loan from a digital platform takes less than 10 minutes, and the application formats are available on the secure website of the FinTech lender. The application form usually comprises of some basic questions to evaluate the eligibility of the business for a loan. These questions include years in operation, average annual/monthly revenue, tax payments and past credit history, if any. Digital uploads of the relevant documents support the information.

There is no waiting game when a business applies for a loan from a FinTech lending company. As soon as the application is submitted, its evaluation by customised algorithms begins, and it may then be sent for a quick manual review.

FinTechs notify the borrowers of the decision on the application on the same day. If the decision results in an approval, they disburse the total approved amount in the next 2-3 working days. The amount is credited directly to the business bank account, and the SME can withdraw the necessary sums to fund the operations/stock purchases as required.

How to pay back the borrowed amount ?

Most loans are paid through equated monthly instalments (EMIs), and the same method can be used to repay a FinTech SME loan. To make this process more convenient for their borrowers, some companies give them the flexibility to vary the instalment amount when required. As soon as the business records reflect better revenues than the estimations, it can pay off the loan in full and save the trouble of managing EMIs for the complete schedule. The prepayment penalty charged by a FinTech is still less than that of banks and traditional NBFCs.

Is your business facing a cash crunch? Do you want to move to the next level of growth or invest funds to start operations at a new location? Capital Float is a friendly FinTech lender that is trusted by businesses in multiple industries. From term loans and working capital loans to funds for specific domains such as medical practice and online selling, we provide an array of credit products tailored to the needs of business owners and self-employed professionals.

Growth of revenue for traders

 

[maxbutton id=”6″ url=”https://safe.capitalfloat.com/cf/default/register?utm_source=blog&utm_medium=web” text=”Apply for Unsecured Trader loan” ]

 

To know all about the loan that you seek and the amount that you can borrow, feel free to call us at 1860 419 0999.

Oct 24, 2018

Card image cap
Top 10 Time Management Tips for Small Business Owners

Time is money. No phrase proves this statement better than when you own a growing business.

As you strive to achieve your business aspirations, juggling responsibilities and managing activities end-to-end sums up a typical work day. You simply cannot afford to compromise on any of the processes at hand, because it might have a profound impact on the growth of your venture. The trick is to focus your productivity on the limited resources you have in a time-efficient manner till you can confidently handover the heavy lifting to experts. Successful businessmen will tell you the same, but in two words: time management.

Here are our favorite tried-and-tested time management tips for small business owners to save you time and make running your business easier.

1. Fix a Schedule and Stick to it

The best way to accomplish a productive day is to show up at work with a clearly defined set of goals and tasks, preferably hand-written. A disorganized schedule leads to ineptness and wasted hours, eventually leading to a loss of focus on business objectives. Account for every hour of the day, from the time needed for meetings and document review to travel and shopping. Create your schedule with three categories- one for the responsibilities that need to be completed that day, another for those activities that require your attention but can be put on hold and a third with minor tasks that you can work on if you have extra time. Know your downtime- you can use this for short breaks.

2. Focus on ONE Task at a Time

Multitasking might seem like a clever way to do many things within a short amount of time, but it divides your attention among the responsibilities at hand. Being a budding enterprise, this is not a risk that you want to take now. Instead, you can try the ‘Pomodoro technique’. This involves setting your timer for a specified time and focusing wholly on one task before the timer goes off. Repeat this after taking short breaks of 5 minutes between tasks. An efficient way to structure your time, this technique ensures that you devote time for a specific activity regularly.

3. Delegate Work

All small businesses are a one-man army early into their business operations. But your growth journey to becoming a larger enterprise begins when you start delegating responsibilities to expert personnel. Hire people who are dependable to manage tasks you don’t have time for or you are not suitably skilled for. This will give you more time to work on things that you are best at and need your personal attention. Keeping in mind that most growing enterprises might not be sufficiently funded to hire the right people, Capital Float offers Unsecured Business Loans to support the recruitment needs of these businesses.

4. Avoid Distractions

Any means of distraction is harmful for the growth of your business, as the work you do is very different compared to those of your employees. If you think your team members are wasting time on social media, set up a URL blocker on your system. You can forward calls, set up caps on answering emails or designate others to perform repeated tasks, if these are causing you to deviate from your daily schedule.

As you get busier, more people demand your time. Reducing distractions implies training the people around you to respect your time. Your employees tend to consume your time with constant problems or through attempts to garner your attention. Take steps to identify the major time-wasters and keep them at bay.

5. Prioritize difficult tasks

An effective time management hack is to start your work hours with the most challenging task at hand. Despite varying individual notions of productivity, mornings are accepted as the time of the day when you are at your optimum performance levels. This leaves the rest of the day to handle repercussions or developments, and you can work on other priorities with a relaxed frame of mind.

6. Watch out for ‘Shiny Objects’

Many a small business that has just entered the economic space face the ‘shiny object syndrome’ early into their growth phase. Shiny objects, or seemingly bright opportunities, keeping popping up from time to time and they tend to distract you from your business objectives. You can eliminate such time-wasters by asking for agendas before attending any business proposition and comparing new prospects with the value of opportunities at hand.

7. Organize your Work Space

There is no bigger demotivating factor than coming to a cluttered workspace every morning. Not only does it create an unorganized mental space, but according to recent surveys, makes you stay at office longer. Documents categorized into inbound and outbound piles, color-coded filing cabinets, scanning forms onto Outlook, and similar techniques will save you the trouble of rifling through scores of paperwork to find information.

8. Evaluate and Improvise Consistently

The worst thing to do to your business is to continue implementing processes that do not benefit your cause. Most small business owners might be busy with specific projects to spend time analyzing their business models. This is where a quarterly evaluation becomes the most significant of time management tips and strategies. A quarter, or three months, is relevantly sufficient amount of time required to determine the effectiveness of a strategy or a business relationship. Carrying out evaluations at the end of every quarter gives ambitious entrepreneurs better process insights and a chance to move in the right direction.

9. Measure Big Successes & Failures

One of the critical time management skills that a small business owner must possess is goal setting. Define scalable weekly business goals with an emphasis on a particular aspect of your business that you want to focus on, and evaluate the big wins and losses at the end of the week. What makes this strategy so productive is that here, failures are treated as important as successes, as early analysis saves the time that your team might have continued working on them.

10. Leverage Technology

Most small business owners spend more time running a business than growing it. Tasks like staff rotas, invoicing, payroll and tax consume more than 30 hours of productive time every month. With the infinite number of apps and services available online, technology can be used to fill the gap in your current business processes. Automating repetitive tasks such as these will help you save a lot of time to focus on activities that directly impact the growth of your business.

Oct 24, 2018