Why Banks Don’t Have an Aggressive SME Portfolio

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India is home to a large number of MSMEs and startup companies. With ~29.8 million MSMEs in India, they make up for 8% of our Nation’s GDP, provide employment to over 80 million people (also creating close to 1 million new jobs annually), contribute to 45% of the manufacturing output and account for 40% of exports from our country. They are the crucial implants in the economy and contribute significantly to the economic and national progress of India. One of the major vantages of SMEs is the fact that they can render large employment opportunities at comparatively lower cost of capital than large institutions are capable of doing. In addition to this they play another key role in India- Industrialization of rural areas. It is no wonder then that the current budget lays emphasis on SMEs and agriculture; the government knows that it is these MSMEs which will drive growth and progress into our rural areas.

SMEs contribute to 8% of GDP, 45% of manufacturing output, 40% of exports, employ over 80million people and create 1 million jobs annually

But, for all the glorious contributions of the SME’s to the economy, they are constantly under the burden of insufficient access to funds. The majority of these SMEs do not have access to a loan or the eligibility to apply for one for that matter. Most of the traditional lenders prefer the old school collateral based lending and assess the borrower based on previous profitability with at least three years of sustained growth. Unrealistic expectations on these companies that are tardy in growth and operating in sectors that don’t support high cash flows, results in most of them being turned down when it comes to loan approvals.
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Here’s How Loanzen Lends to Small Businesses

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You just happened to land at the Loanzen website or somehow through a combination of google search results and webpage redirects, you happened to hear about the ecosystem of “P2P lending” and “invoice discounting” and you are as confused as a penguin in the Sahara can be. That’s not a cause for concern though; most people are, as this is a fairly new concept in the funding space.

That’s exactly what this post is going to be all about; to familiarize you with this environment. So let’s dive right in then. To start with, a P2P or peer to peer lending is a premise where the borrower and lender connect to discuss, evaluate & analyse the credit profile and actuate the loan on the terms agreed upon. The elemental difference between a conventional loan and invoice discounting is that these are easier to access, quicker to process and lent out for shorter durations than bank loans. Loanzen is a market place that aspires to accomplish just that- connect lenders and borrowers in a mutually beneficial manner.
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The Realm of Invoice Discounting

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Here at Loanzen we use the model of invoice discounting to bridge the gap in your cash flow requirements. Invoice discounting is financial services that enable you (the business) to release the funds which are tied up in unpaid invoices. In simpler terms, it allows you to get paid ahead of time. This is extremely vital for small businesses that require cash for daily activities.

Invoice discounting is a form of Invoice financing. The underlying concept however remains the same- you make use of the pending cash flow in the invoice to raise a % of the same at an earlier date. There are two types of invoice financing.

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Budget 2016 Broken Down

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It’s official and up for all to see. The Finance Minister’s budget 2016 is set to have a much needed impact on the Indian economy and expert opinions have surfaced on almost all media. While some have termed it as nothing remarkable, others are of the opinion that this has been aimed at the heart of India- our rural sector, the backbone of Indian economy. Throughout the budget, the finance minister had made it a point to construct on the current government’s accomplishments over the previous one and claims that despite the unfavorable political, financial and economic environment into which his government was thrust into power, they have against all odds, overcome all challenges and in the process strengthened the position of India both internally and externally. One of the highlights that came earlier on in the speech is that the fiscal deficit has been reined in at 3.9% of GDP during 2015-16 and is expected to be around 3.5% during 2016-17.

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Why Banks Don’t Want to Lend to Your Business for 90 Days

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With an estimated 26 mn small businesses providing employment to over 60 mn Indians, small businesses are a key growth engine of the economy. It has also been identified in numerous studies that access to credit is one of the key pain points for the small business. In a recent report on the working capital financing gap in the country published by International Finance Corporation outlines that the bulk of the working capital demand is for short term credit.

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Hello world!

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It’s a pretty exciting time for us at LoanZen as we complete our first operational month having enabled multiple businesses to access invoice based financing on our platform. When we started LoanZen in September of 2015, we wanted to build a platform that would solve two key problems that we saw small businesses facing in their ability to find capital to grow their business.

  1. Absence of meaningful short term financing/ working capital options.
  2. SMB’s owner/ entrepreneur’s effort, time involved in securing credit from a bank.

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