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Loans4SME: Growth Ally for Small, Medium Businesses

The Mumbai-based fintech firm is helping MSMEs with collateral-free and cash flow-based loans for their varied financing needs.

By Mrinmoy Bhattacharjee

Loans4SME is catering to the cash-strapped fast-growing small and medium enterprises (SMEs) and early-stage startups. The fintech marketplace connects businesses with lenders to offer collateral-free and cash flow-based loans.

The company’s core competency lies in making the entire process easy and hassle-free for both SMEs and lenders. It helps the businesses identify best options for raising capital based on their financial position and the funding requirements. It also facilitates the entire loan disbursement process once the two parties agree on the transaction.

“We connect businesses that are looking for growth capital, be it working capital or project finance. Our firm finds the right lenders for them. Loans4SME has built a technology-enabled solution, which very quickly looks into data of the small businesses and offers them insights on determining the right capital structure and if they should raise a loan based on their cash-flow generation potentials. This is very important as they do not spend enough time to understand that if they get a loan today, will they be making enough cash to repay the loan on time,” says the company’s founder & CEO Simmi Sareen (Centre in Photo).

Loans4SME also acts as an advisor to the businesses, especially the small ones that look for very small ticket size loans and do not get the right advice. Sareen explains, “When it comes to advising, we take a dual approach: online and offline. A lot of businesses approach us for loans via our website or call us. In the next stage, they upload financial data which is very basic. We have built algorithms that help us evaluate the right solution for the business. We understand that these businesses are not tech savvy so our interactions with them happen through a combination of phone calls and e-mails, besides face-to-face.”

The fintech marketplace disburses loan from Rs 20 lakh to Rs 30 crore. It uses telephone to advice businesses for small ticket size loans, and conducts face-to-face discussions for loans of larger amounts or those that require structuring. “While dealing with us the entrepreneurs do not have to go back and forth for their requirements, just as they often have to while dealing with traditional banking. We have a streamlined process that needs minimum communication with us,” she says. Loans4SME has built a platform that has 50-plus lenders.

Over the last two years, Loans4SME has looked at 300-plus transactions and disbursed about 60 loans. It has lent at varied stages of business – the early-stage that requires the first loan but when there is no knowledge of working of the debt market; stages where the business has been debt-free but now there is need for growth capital; and when enterprises have been incorporated by first generation founders who do not have collateral and are looking for cash flow-based loans.

Besides, the company caters to more mature businesses that already have a bank loan, she adds. “Banks are slow to react to business growth that takes place rapidly. A business may be recording revenues from Rs 5 crore to Rs 20 crore and to Rs 40 crore within a span of two years. Bank loans will not keep pace with that and these businesses need alternative loans. Moreover, banks need collaterals and these businesses may run out of collateral at some point in time. We come in here to offer loans as a top up.”

Also, Loans4SME has identified two types of financing gaps that MSMEs grapple with – order-based financing and invoice discounting. “We found that there is a funding gap with regard to OEM or EPC contractors, who get orders for which they need to buy raw material and hire labour to execute. If they spend 50-60% of the order value, they will be able to ship it. We found that a lot of businesses say no to orders because they cannot find working capital for the new business. We are able to connect them with our lenders for order-based financing.”
She adds, “Invoice discounting is relevant for service companies or tech companies that have software as a service (SaaS) model. They do monthly billing to large corporations, but are paid after three months. They need invoice discounting as they have to pay salaries to employees every month.”

And all the while, Sareen avers that the fintech marketplace has ensured that the entire procedure is based on transparency and ethics by offering the “best” possible solutions to its clients in the alternative lending space. “We close loans faster, cheaper and on better terms. We are able to close loans as quickly in 2-4 weeks, compared with 3-4 months by the traditional banks.” Loans4SME has disbursed $30 million worth of loans in the last 18 months. “Our firm aims to lend Rs 500 to Rs 1,000 crore in the next 12 months across the country,” Sareen says.


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