Old May Not Always Be Gold

Like most college friends, Ankit, Murthy and Kumanan lost touch with each other soon after graduating. Unlike most friends who lose touch with each other, they ran into each other while vacationing in the same resort at the same time to celebrate new years’ eve. While their career paths had diverged 15 years out of college, they were soon reminiscing the good old days with an equally old bottle of scotch. After rewinding and replaying the past a few times, the conversation caught up with time and they started talking about work.

After several years of working in a traditional bank, Ankit got bored and joined a new age digital lending company as the head of credit. Kumanan worked at large garment manufacturing units in India, Bangladesh and China. Watching the industry disappear around him, he sensed opportunity and had recently started his own T-shirt design and manufacturing company where he was riding the e-commerce boom and sold most of his inventory online. He had ambitions of starting his own brand soon. Murthy had joined his father’s business and expanded a single department store into a chain across the entire city. He also supplied snacks, beverages, toiletries, cleaning equipment to the largest software company of his city and they were constantly demanding that he supply paper, ink and most other consumables as they grew and expanded.

With the scotch taking care of any and all inhibitions, Murthy and Kumanan’s frustrations surfaced and they started talking about how they love their work, the sense of independence, the sense of control over their destiny but how they absolutely hated dealing with lenders and banks. In their mind, Ankit personified this opaque, insensitive, slow lender and they wanted him to explain why all their past loan and credit card applications had been declined. The barrage of questions targeted at Ankit reached a point where Kumanan even wanted Ankit to explain why his voter ID had the wrong address! Ankit smiled and surprised them by saying he shared their frustration of being unable to provide the right loan to the right person at the right time in his old bank and that he also moved to a new age digital company with the intent to redefine lending in India.

Ankit then asked Kumanan and Murthy to explain how they went about getting a loan and got the answer he expected. Like most business owners, they did not have the time to deal with multiple banks and they used an agent to help them get loans. While they did not particularly like their agents, they did send a guy over to their office to fill forms, collect documents, organize bank discussions and get them their funding without them having to figure out every bank, product and process. In addition, Murthy and Kumanan both had multiple suppliers who they had worked out individual credit terms with. They also admitted that whenever they needed urgent money or large sums that banks would not provide, they got it from local moneylenders at exorbitant terms. It was quite beyond them as to why a bank would think they cannot repay a larger loan when they were clearly taking multiple loans and successfully paying them off.

Ankit explained that traditional banks and lenders had very limited scope for loan officers to think out of the box and act beyond established policies.  Banks did not have significantly different products or processes and ended up providing 2-3 year lump sum loans that were not large enough for Kumanan or Murthy.  They always ended up spending time allocating money across various activities such as expansion, payroll, supplier payments, seasonal demands, online vs offline sales where payment cycles were vastly different. The advantage of Ankit’s new age company was three fold: custom products designed to address specific financial needs of businesses, high speed customer experience with minimal documentation, and low pricing due to product features that enable non-conservative underwriting. Kumanan and Murthy’s curiosity was piqued and they wanted to know more.

Ankit asked Kumanan to imagine a world in which he downloaded a mobile app, added all his suppliers and had a line of credit with standard terms available that he could use to pay any supplier any time. He could pick his repayment period and the payment goes through immediately! No need to haggle with each supplier and the credit line grew with usage and regularity of payments. Since he sold online, he also had the option of picking a tailor made e-commerce loan where repayments were mapped to the payment cycle and a transparent cash flow control mechanism ensured that many more people qualified for affordable large loans. These loans even adjusted themselves for seasonality of his business and he could request top-ups as and when he needed them. Kumanan was very impressed that these products were not restricted to his imagination but were actual products that Ankit was able to provide via his new age digital lending company.

Murthy wanted to know if there was something for folks like him who did not sell online. Ankit told him that instead of taking long term loans that may not be utilized all the time but keep accruing interest, Murthy should opt for an invoice financing loan wherein all his supplies to the large software company could be funded as and when they make a purchase from him. That way, he does not have to plan for their expansion and is confident of the right amount of money at the right time and the right rate. Murthy agreed that while this product did sound interesting, he preferred if somebody came to his office to explain the product and handle the paperwork. Ankit mentioned that his company did not have any “paperwork” since most customer information was collected digitally but he is happy to send over a person to Murthy’s office to help guide him through the product and process. Murthy then wanted to know why he could not get a larger loan and Ankit explained that lenders and banks are happy to lend when they have some visibility into the cash flow of a business. As an example, Ankit’s company had recently launched a merchant cash advance product that collected daily payments directly from the credit card machines that Murthy had in all his stores. Typically, it was a lot easier to qualify for such a loan, there was minimal documentation and there was no need to think about payment due dates!

Having given up hope of ever hitting the gym, Kumanan and Murthy were happy with their new year resolution of trying out custom financial products from new age digital companies and keeping in mind that old may not always be gold!

Tushar Garimalla

Tushar has deep expertise in credit, risk management, portfolio management and analytics gained during his 10-year career with HSBC and Capital One in India and the US. Most recently, he worked on a small business credit card portfolio purchase for Capital One including business development valuations, due diligence, system integration and credit policy development. Tushar graduated from IIT Madras with a B.Tech in Electrical Engineering.

Tushar heads Decision Sciences at Capital Float. 

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In today’s world, saving money is of the utmost importance. If you are stressed about how to save money, then you are not the only one in this regard. Financial planning sounds easier than to practice. Even though it may be more exciting to spend money, you should try to practice saving for contingencies, as the future cannot be predicted and is uncertain.

Why is saving money essential?

Saving money can help you to become financially independent, providing you with security in the face of emergencies. Financial planning is necessary to set aside money for the family’s needs, such as the education of children, marriage expenses, healthcare expenses, planning for significant life events, retirement, etc. Saving money is an effective financial practice and a lifestyle choice with several proven benefits.

7 tips to save money

Though there are several ways to save money, you could consider implementing these seven tips:

  • Awareness: Being aware is one of the most critical factors. If you are aware of your finances and spending habits, you will be able to consciously set more money aside.  
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  • Curb the spendthrift in you: Many people aren’t always conscious of how lavishly they spend money on unimportant things. Tracking expenses will help you maintain a close vigil on expenses and keep the spendthrift within under control.
  • Create an emergency fund: While facing emergencies, financial support in the form of insurance or loans may not be immediately available or they may not cover the need of the hour. At such times, savings come in handy to address the contingency. Therefore, make sure you set aside a fund for unforeseen expenses.
  • Sell things you no longer use: There are many things we buy, and after some time, do not use any more. These items can be sold to generate funds.
  • Savings calculator: Various types of savings calculators can be found online. These can be used to calculate the amount one can save over a given period of time. Using these calculators could encourage the habit of saving.
  • Switch to a personal finance money management app: Spends tracking and budgeting can be made easy with personal finance management apps. Walnut is one of the most loved and rated apps in the market with over 10 million downloads. Use this app to unlock the financial planner in you. 

It is necessary to save money, as it provides security, financial independence, and reduces stress. Get started on your journey of personal financial planning to achieve peace of mind and money in the bank for when you need it.

Oct 24, 2018

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Tips to Improve Your Chances of Getting a Business Loan

Lack of adequate funds is one of the main reasons why enterprising individuals with innovative business ideas often struggle in materialising their projects. Even after a venture takes off and begins to grow, it will need extra funds at some point in its growth journey to enhance its operations and pay its suppliers. A business loan in India has been typically procured from banks, but over the past decade, though the number of small and medium enterprises (SMEs) has risen sharply, most of the SMEs who had applied for business loans remain unfinanced at large.

The gap between this demand and supply for loans is gradually being closed by new age FinTech lenders. By providing quick loans without collateral, FinTech companies are helping entrepreneurs in harnessing the full potential of their business ideas. However, the competition in this field continues to be huge, and applications for business finance are still approved based on creditworthiness.

If you are grooming your entrepreneurial venture for more success and plan to apply for business loans online, here are some tips to improve your chances of approval:

1) Create a neat business plan – You must have chalked out a business plan before foraying into a field of your interest, but if there are no formal documents in its support, it is important to prepare them. A formal business plan must include the objective of the project, the way it plans to earn revenue, the development strategy and the marketing methodology. It should also have copies of financial statements and the data on cash flow projections.

If you do not have an official business plan, you may be asked to demonstrate a solid record of revenue generation with at least one year in business. To get the application for an unsecured loan approved, it is important to prove that you are capable of repaying the loan amount without default.

2) Include a documented plan on the intended use of the loan – When you need a loan for business, you must also be able to tell the lender about its exact purpose. Be it a bank or a FinTech company, the lending institution will determine the credibility of your application on the basis of the reason for which you need the loan. While all organisations have their own unique requirements, the most common grounds for loans are business expansion, raw material or inventory purchase, administrative expenses and capital investments. You can also borrow from a digital lender to refinance or pay off old debts.

3) Know what kind of loan will suit your needs – Even after you describe the purpose of your loan, you may be faced with multiple loan categories that you can apply for. It is good to know the details of each – in terms of interest, tenure, payback plans and documents necessary to procure them. Banks and digital lenders often categorise their loan products for the ease of disbursement and management. While some credit products help in quick invoice financing, others may be more beneficial to buy inventory. Consult the lender to borrow profitably.

4) Double-check your cash flow projections – When a business does not have a high credit rating or a strong history of generating revenue, it typically gets saddled with a high interest rate on unsecured loan. It is therefore important to assess your cash flow projections. You must have a good knowledge of your ability to pay back and ensure that you will soon have adequate funds to clear off your debt.

5) Be aware of the risks that lenders assess – Lending institutions in both public and private sector evaluate loan applicants on a scale of risk. If a business is considered a ‘risky borrower’, there is a high chance that its loan may not be approved. The traits that make a business look risky are as follows:

– Very small owner’s equity
– Poor credit history or defaults in payment of previous loans
– Poor revenue earnings
– Very short period in the industry
– Weak accounting system
– Questionable management

6) Leverage your personal creditworthiness – Usually a business is a different entity from its owners. Even a sole proprietorship is a separate legal entity for accounting purposes. However, when it comes to getting a business loan without collateral, even a clean personal credit history can help you in obtaining the amount you seek. The strategy is to make payments on any outstanding personal debt and credit card bills as much as you can afford. This will give your lender more faith in your business and assure them that you are not burdening yourself with unpaid debts. You can personally guarantee for your business loans by proving your ability to repay them.

7) Research extensively for lenders – If you were denied a loan for business by a bank or a traditional lending agency, do not consider it the end of your search for funds. A FinTech company offering unsecured business loans evaluates your creditworthiness using parameters different from those used by banks. If you can successfully prove your expertise in business, FinTech lenders will provide adequate financing for your immediate working capital needs. So, think beyond the conventional platforms and apply for finance online using those documents that demonstrate your ability to pay back in time. Digital lenders also grant short-term loans, the amount being disbursed in a few minutes post the approval of the loan application.

The online lending industry has shown that getting a business loan need not be a frustrating process for SMEs anymore. FinTech companies are willing to grant loans and the application process can be effortless. All you need to do is start preparing early (in lieu of the competition from other similar applicants) and collate the minimum essential documents in support of your application.

At Capital Float, the basic premise is that all applications for getting a business loan will be evaluated with speed, efficiency and favour. The products for business loan in India are custom-fit for SMEs and include Term Finance, Online Seller Finance, Pay Later Finance, Merchant Cash Finance, Supply Chain Finance and Taxi Finance.

Oct 24, 2018

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Convenient Supply Chain Financing Creates Resiliency In The System

Supply chain finance is an important but often underrated aspect of supply chain management. At its core, supply chain management is the management of the flow of material / services, data and money through a network of assets from the point of origin to the point of final consumption (and back). Natural disasters, geo-political crisis and financial crisis faced by the world over the past decade have forced companies to move away from only optimizing their supply chains to making them more resilient. For a supply chain to be truly resilient, all risks associated with the asset base managing the flow (i.e. the material & services, data and money) must be negotiated intelligently, keeping in mind that each one represents a point of failure or a point of opportunity.

Industries are habituated to ignore the significance of supply chain financing. While there has been a lot of collaboration between different constituents of supply chains, they usually center on inventory. However inventory and finance are intrinsically linked; increased players in the supply chain machinery is directly proportionate to the increased complexity in the financing of the process. This is especially true in a country like India, where the number of intermediaries, in many cases outnumbering the actual value addition points, poses a complex problem from the paradigm of supply chain finance and more importantly supply chain resiliency.

As with anything in a complex supply chain, the bulk of the power resides in a few constituents (maybe the retailer or the manufacturer depending upon the specifics of the value chain). These companies understandably look out for their own interests especially when it comes to supply chain finance. Though concepts like JIT (just in time) inventory and quick turnaround times from order-to-delivery have reduced inventory levels held drastically, most companies still hold onto the traditional 30-45-60 day of credit terms with their suppliers. This puts incredible financial stress on the supplier which in the worst case manifests in poor quality of supply. In the long run, this increases the total cost of ownership for the company, i.e. investment in more stringent QC processes, returns, disruption to the manufacturing process, supplier switching costs etc. Applying the same principles of collaborative thinking to supply chain finance will not only make the overall chain more resilient but also optimize the flows and pass on efficiencies in the long run to the end consumer.

In today’s business environment where “share holder value” is no longer a buzz word but the focus of every corporate board of directors, it might be wishful thinking to expect companies to share their margins or reduce days of credit to suppliers in the interest of collaboration. This is where a third party financial institution plays an important role. By providing liquidity to the supplier on the basis of the credit umbrella provided by the bigger company, the addition of the third party financial institution creates a win-win across all stakeholders involved. This is even more critical in the case of small and medium sized enterprises, which at this point are forced to spend only a fraction of their efforts on innovation and growth.

While some large corporates do have some form of supplier financing initiatives through tie ups with Banks and NBFCs, in most cases the coverage of the initiatives are limited (to some marquee suppliers) and in a larger amount of cases are a generic form of receivable financing based on existing credit policies of the financial institutions, which are out of sync with business realities. It is imperative for large corporates to have a supplier financing initiative for all their suppliers, especially the SMEs to manage their financial risks. In turn it is imperative for the financial institution to have a tailored product which reflects the operating realities of the industry and also the specificity of the supply chain. Collaboration of all three stakeholders, i.e. the large corporate, SME supplier and financial institution will be critical to ensuring a sustainable supply chain finance program.

We live in an interconnected world; therefore large corporates have the responsibility to ensure that their SME suppliers have access to finance, if they truly want to make their supply chains resilient.

Prashant Adhurty

Prashant has 11 years of experience in business strategy and operations, with specific expertise in the areas of project management, supply chain management and business process formulation , across the retail sector, United Nations system & international organizations, telecommunications & high technology, oil & gas and 3rd party logistics. He has successfully managed and delivered projects for clients based out of Europe, the USA, Africa and India.
At Capital Float, Prashant heads Business Development for Supply Chain Financing.

Oct 24, 2018