The Digital SME
If you’ve been reading the papers over the last year, you must have come across the words ‘digital’ and ‘SME’ on almost a daily basis. From the the ‘Digital India’ initiative by the government to cut red-tape, bureaucracy and dare I say even corruption, to the KPMG-Snapdeal report on how going digital (or selling online) has helped SMEs increase their turnover and profitability, there’s a lot of excitement in India about SMEs going digital.
Over the past few months I’ve been asking myself a couple of questions:
- Do SMEs really understand what “going digital” means?
- Do SMEs know what are the benefits of going digital?
Going Digital: What does this really mean?
Depending on which report you read, SMEs can sell products online for prices between ₹1500- ₹3000. So does this mean the SME has now gone digital? I think not. This just means the SME now sells its products online and therefore has a greater reach, which to be honest is a great achievement in itself, but the SME still has to adopt technology internally for it to go truly digital. A modern digital SME is powered by solutions that are spread across multiple functions: From Customer Acquisition to Risk Management to Operational Efficiency to Enabling/Empowering Workforce. Adopting new age technological solutions internally will allow an SME to achieve scale and more importantly operational efficiency at a lower cost. Some of the largest start-ups have managed to scale globally because they have successfully done this. Firms like Practo, AirBnB and Uber for example, have successfully incorporated technology in their internal processes which has allowed them to grow globally at a rapid pace.
The rapid growth of technology has given SMEs:
- Access to Enabling Infrastructure through increasing device penetration and an enhancement in internet connectivity.
- Availability of economically feasible enterprise solutions and services along with a thriving mobile applications (apps) ecosystem.
- Customers who have adopted technology and ecosystems that are allowing this adoption through key initiatives.
Going Digital: Key Benefits
4 areas are likely to be directly benefited if SMEs adopt technology:
A) Customer Acquisition
Technology can be leveraged to access clients in distant geographies and create a greater visibility among target segments. Personalisation in engagement and customer relationships, for both new and existing clients, can be managed in a more efficient manner. The immense data that is captured using technology will allow SMEs to develop customer intelligence which will then allow them to optimize sales and engage with various ecosystems to open new sales channels.
B) Operational Efficiency
Automation and streamlining of core processes will allow the SME to become more efficient, reduce wastage and utilize resources in an optimal manner. This will allow them to enhance the customer experience and optimize their supply chain management through better visibility and control over logistics. With efficient processes in place, SMEs will be able to choose suitable potential partnerships that will fit their internal processes and not cause any disruption,
C) Workforce Enablement
Technology can go a long way in identifying workforce shortfall and identifying key areas of skill development needed within the organisation. A number of digital tools are now available for employees to collaborate and for the SME to monitor employee productivity. Web based solutions for skill development and training for employees will help the SME ensure that employees are empowered with new tools and concepts on a regular basis
D) Risk Management
With use of technology comes the responsibility to protect the information the firm has gathered. Data Security becomes paramount for customer/employee data as well as the company’s financial information. Digital solutions for preventing such leaks would strengthen the organisation. Technology can also be used to safeguard and monitor physical assets through the use of surveillance, asset control and tracking solutions.
There has never been a better time for SMEs in India to “go digital” and leverage technology to incorporate financially feasible solutions.
|Akshay joined Capital Float after completing MBA from Judge Business School, University of Cambridge. Following 6 years with Deutsche Bank across various functions and geographies, he opened a French Italian bistro in India. At Deutsche Bank, Akshay worked across risk management, structuring derivative products, trading Indian government bonds and structuring and executing assets financing trades.
Akshay manages Capital Markets at Capital Float.
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Having got off to a good start, a business typically aims to grow and explore new opportunities. To make this happen, businesses need to move in the right direction. This is especially true for a business in its early days when managing operations efficiently is a challenge, thereby taking precedence over matters of strategic importance such as goal-setting and business development. One way by which you can change gears from the routine rigmarole is making a #BizResolution. These are exactly like making New Year Resolutions, except that these will help you boost business growth in your enterprise.
A business resolution is like a promise or commitment you make to achieve specific objectives in the coming year. Since it involves your enterprise, the level of commitment to making it happen is high.
Here are 5 ways business resolutions can help drive growth in your business. Business resolutions can help:
Set realistic goals: While your company is being steered by a sound business plan, it is critical to break down broad business objectives into achievable goals. So, while your plan projects a specified growth rate, you need to identify smaller goals that will lead to this result. For instance, your #BizResolution could be to “improve relationship with suppliers,” which will have a positive effect on inventory, product availability, and therefore customer satisfaction and higher sales.
Drive business strategy: It is common for new entrepreneurs to get lost in the operational hassles and simply not have the bandwidth to focus on more value adding tasks such as digital marketing or human resources. The urgent matters take precedence over what’s important, and the business slows down for want of strategic inputs. In this case, a #BizResolution can pinpoint to strategic focus areas, thereby helping realign the business priorities for growth.
Upgrade skills: Running a successful business is a constant learning process, which involves learning from competition, adopting best practices, upgrading skills and so on. This is a must in today’s rapidly changing environment, which demands that companies constantly innovate. Yet, somewhere in this quest for efficiency, the learning element takes a backseat. Having a skillset-oriented business resolution can help foster a culture of continuous learning and skill upgradation.
Focus on expansion: A high-growth focus is what most investors look for before investing in a new business. To expand, you need capital for which enterprises usually need investors or lenders. Hence, you must assess the potential for new markets, new partnerships, complimentary product categories (upselling and cross-selling), new channels (online), and new customer segments. Making such growth-centric business resolutions will keep you firmly on the road to expansion and success.
Develop a niche product: A niche product builds on the premise that certain small market segments are typically underserved. Find your blue ocean strategy and explore a better chance to grow. Make a #BizResolution to invest time and effort into a promising, niche product, which allows you to differentiate your offerings and create an uncontested market space.
Business resolutions need not be yearlong commitments. Periodically assess your product or solution with respect to the industry environment and change tack—set new objectives or redraft your existing ones. The idea is to stay in tune with emerging opportunities and align your company with market needs to make the most of growth prospects.
Create your #BizResolution today and share it with us to stand a chance to win exclusive prizes such as: Exclusive tickets to a T20 cricket match in your city Amazon vouchers Click here to get started.
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Oct 24, 2018
To upgrade the quality of education delivered in their school, authorities running the institution may occasionally need to apply for loans. The first thought that strikes while contemplating Indian school finance is one of approaching a bank. The low rate of interest and general trust in the banking system draws many private schools to these established lenders.
Although banks offer loans to businesses and other organisations, when it comes to financing educational institutions, things can be rather challenging, and it may take long before the school actually receives the requested amount for use. The reason for this is complex eligibility criteria and the long list of documents necessary to get the loan application approved.
School finance in India is granted to institutions that are backed by promoters or a trust. While applying for the loan, a copy of the trust deed or memorandum of association needs to be submitted to the lender. However, when the loan is being applied through a public sector or private bank, it may also ask for hard copies of several additional documents such as three to four years of financial statements along with their audit report, three to four years of income tax returns submitted by the school, bank statements and multiple KYC documents.
With such requirements, if the school has been running for just two years, it may not be able to get the loan. In addition to a pile of printed copies, the legal restrictions for funding educational trusts may also compel the bank to ask for collateral security or involvement of a guarantor. This is considered to be the hardest part as not many schools can afford to hypothecate a valuable financial asset to the lender.
Is there any other alternative for private school financing? Can these institutions securely apply for their loan and get the amount in minimum time without going through the hassles of submitting numerous documents and arranging for collateral? The answer, fortunately, is ‘Yes’.
Keeping up with the plans of promoting quality education in India, digitally operating non-banking finance companies (NBFCs) called FinTech companies have come up with a borrower-friendly lending model. They provide school finance on easy terms and conditions that merely require the borrowing institution to:
- Be a private school with fully functional classes from LKG to VIII/X/XII grade
- Be run by promoters or a trust
- Have an annual fee collection of more than Rs. 75 lakhs
- Have the school building on its own property
Since the application process is digital, the school needs to upload only soft copies of the documents proving its eligibility. Moreover, financial/bank statements are required for just two years. There is no need to provide any security or guarantor promises: FinTech loans are collateral-free.
If you have plans to construct a new building in your school, stock up the library, refurbish the labs or add any other facility to enhance the education service, the answer on how to finance a school improvement plan lies in an unsecured loan from a FinTech.
Capital Float is a leading school finance provider in the Indian FinTech industry. We offer quick loans of up to 50 lakhs to fund school development. To know more about our finance options, call us at 1860 419 0999.
Oct 24, 2018
Many start-ups are launched, propelled by a brilliant idea, but often face tough times due to inadequate funds. The first impulse is to turn to banks, which, however, usually refuse requests for a loan for business without security. They also ask for plenty of documents to corroborate the need for the grant and the purpose that it will be used for.
A parallel source of finance for small businesses come in the form of non-banking financial companies (NBFCs). Traditional NBFCs offer loans on terms similar to banks, but they do not hold a banking license. In addition, unlike banks, they cannot accept deposits from public. Other than loans and credit facilities, they can offer retirement planning schemes, money market instruments and underwriting activities.
While small and medium enterprises (SMEs) have been turning to banks and NBFCs to get loans, the long-drawn process from application submission to disbursal of funds is still a deterrent for many. After the financial crisis of 2008, there was an even greater need for reliable sources of business finance. Interestingly, the digital technology that gave rise to online banking and e-commerce was also progressing at a fast pace in the same period. This helped to create a new segment of NBFCs in the form of financial technology, known as FinTech companies.
With the aid of complex analytic tools, FinTech companies evaluate credit risk by using an array of customer data, including their digital footprint on social media, e-commerce platforms, smartphone usage and geo-location.
How are business loans by FinTech lenders more convenient than traditional loans for borrowers?
Conventional NBFCs do not usually have a human-centric approach to lending. The lengthy and cumbersome process of applying for business finance that requires piles of physical documents tires out borrowers. Young entrepreneurs who are eager to expand their operations and are confident about returns on their investment cannot afford to wait for long. Also, delays in work can also harm their long-term business interests. They need an alternative source of funds that can cater to their needs more actively.
What draws the digitally perceptive entrepreneurs to a FinTech company is its ability to offer quick loans at competitive rates of interest. Such companies have a holistic approach towards risk assessment and do not ask for heaps of paper-based documents before they start considering an approval for the loan. The basic files needed to check the creditworthiness of the borrower can be uploaded on the encrypted portals of FinTechs.
The advanced machine learning algorithms that these lending platforms employ read through information such as the net earnings of a business, the educational and professional qualification of its owners, the location from which the business operates and the returns on investment that it drew in the past one year. In comparison to this, a traditional NBFC loan is issued to companies that have been in business for at least 3 to 4 years.
Summarily, the prime reasons for which business borrowers prefer FinTech platforms are:
Simplified application process – Instead of visiting a branch in person, they can apply for the business loans from anywhere and at anytime. As the process is digital, all they need is a reliable Internet connection and the soft copies of minimal documents.
Swift funding – Unlike conventional NBFC loans, the funds from a FinTech corporation do not take long to be approved and disbursed.
No prepayment penalties – To make up for their loss on interest due to early pay-off on the loan, banks as well as most NBFCs charge a percentage of the loan amount as penalty. This is not the case with new-age technology based lending organisations. If a borrower can afford to make complete payment on the loan earlier than its stipulated tenure, there are no extra charges.
No hidden charges – You may on occasions have felt surprised when a bank or NBFC told you that there would be a payment protection “insurance premium” charged on your business loan. In the traditional lending sector, such charges are normal. The lending institutions claim that these help in protecting the monthly loan instalments in case sudden sickness or an accident prevents you from making payments on the loan. FinTech organisations do not include such clauses in their agreements. The funds are granted for business expenses in the short term and are approved based on the ability of the borrower to pay back.
The ability of FinTech firms to trawl the online portals and gather data relevant to the borrower’s paying capacity helps in affording more growth opportunities to start-ups. Many SMEs in India have reasonably strong business models, but they still cannot manage to get funds from banks and traditional NBFCs. This shift towards technology-backed alternatives has been favourable for promising ventures.
At the same time, the conventional lending institutions should also understand that FinTech companies are not a threat to their existence. Both these sectors can collaborate with each other in areas such as customer acquisition, product innovation, analytics, sales enablement and cyber security.
The access to innovation through digital peer-to-peer lenders allows NBFCs and banks to create competitive advantages for their own business.
Customer-centric innovation triggered by FinTechs is here to stay. The possibility of getting a loan for business without security or collateral is real. Open architecture-based wealth management tools, Big Data and online financial advice will continue to help entrepreneurs.
As a digital-age lender in this domain, Capital Float uses proprietary algorithms to inspect large amounts of data and evaluate a potential business borrower’s creditworthiness. We offer timely business finance without collateral to SMEs, start-ups, and freelancers to help them bear the expenses that are crucial for their stability and growth in the business world. Our process of judging the payment capacity of businesses is automated, fast and flexible, while also being diligent. If you need loans in less than a week and do not have a very long history in your industry, do not let any refusal from traditional NBFCs discourage you. Visit www.capitalfloat.com to find the business loan best suitable to you.
Oct 24, 2018