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Last updated: 30 Apr, 2018  

Simmi.9.thmb.jpg Credit unavailability, lack of working capital major challenges to SMEs: Loans4SME CEO

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SME Times News Bureau | 30 Apr, 2018

In an exclusive interview with SME Times, Founder and CEO of Loans4SME, Simmi Sareen, said that unavailability of access to unlock new capital and working capital requirements for scale up operations are major problems for Small and Medium Enterprises.

Excerpts of the interview…

Please tell us about Loans4SME and your entrepreneurial journey.
Simmi Sareen: In 2016, a new supply of capital had started to come into the market in the form of digital lenders, impact debt and venture debt funds. Yet, most entrepreneurs I met didn’t have the knowledge or the skills to navigate the complex financial markets and needed help in getting access to capital. With a career focused entirely on SME financing, I understand that financing is one of the biggest growth challenges faced by SMEs. Someone had to build something to fix this huge $400 billion market gap so I figured it may as well be me.  Thus, Loans4SME was incorporated in February 2016 and we started operations in April 2016.

Loans4SME is a trusted advisor for high-growth SMEs looking for debt financing. We cater to the capital needs of SMEs by finding the right financing options and facilitating cash-flow based loans through our network of lending partners.

What are the products and services you offer?
Simmi Sareen: Our aim is to expand the source of debt capital for SMEs beyond banks, to include venture debt funds, impact lenders and family investment offices. 

 Along with providing advisory solutions, we also help the SMEs in obtaining the following types of loan products from our curated Lenders:

(i) Work – order Finance (ii) Invoice Discounting (iii) Unsecured Business Loans (iv) Vendor Finance (v) POS based Finance (vi) Cross Border Invoice Discounting (vii) Venture Debt (viii) Operating Lease (ix) Loan for Solar rooftop (ESCO MODEL) (x) Loan for Solar rooftop (CAPEX MODEL)

The factors that differentiate Loans4SME from other lending platforms/ debt solutions are:

ASSESSMENT: Our proprietary algorithm uses decades of academic research to calculate a score that indicates the risk profile of the loan. Every investor who accesses the platform gets access to complete accounting data, credit history, and business metrics from the borrower. In addition, to generating the credit score, the information is organised so that the most relevant data for lenders can be made available in one go, thereby saving time on processing a loan.

STRUCTURING: Through Loans4SME, borrowers can access not just traditional lenders like banks but also NBFCs, impact debt and venture debt funds. We have built the widest range of alternative lending options as our supply of capital. Not only the companies who come to Loans4SME have a higher probability of getting a loan, they get a loan that is most relevant to their business and cashflow.

Please tell us about the SME loan scenario in India.
Simmi Sareen: India has more than 48 MN small and medium businesses with a current debt-financing gap of USD 380BN. Unavailability of access to unlock new capital to SMEs and working capital requirements for scale up operations are the major problems that require highest attention. Traditional lenders like banks are focused on past track record and collateral as decision factors which means that few new age companies qualify for funding. If we can’t find means to unlock debt capital for these businesses, India will not be able to meet the targets it has set itself under the Paris Accord.

What are the major challenges the SME sector is facing in this regard?
Simmi Sareen: Availability of working capital is the key challenge and barrier to growth. SMEs and new age businesses do not understand the variety of funding options available to them and have a limited understanding of debt-financing products at different stages of their businesses. While equity capital has seen a significant growth, innovative debt financing has seen limited progress. Traditional funders offer collateral based loans and do not focus on cash-flow based credit assessment. New age lenders do not participate in debt funding due to the loan size. Regulatory challenges lead to complex structures for Investment Funds and Angel Networks, tedious legal processes are a deterrent for them.

Bankers' unwillingness or SMEs's unawareness, what is mainly responsible for loan rejection to SMEs?
Simmi Sareen: The loans that SMEs need range from ₹20 lakh-₹1 crore, which makes it non-viable for banks to build their own origination teams and risk assessment models. They have built risk assessment models around traditional manufacturing businesses and asset-based lending and lack expertise in assessing risk for new, emerging sectors.
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Financing mail based work orders
Bhagawath Prasad | Tue May 1 16:35:05 2018
Ma'am, Few businesses that are primarily service but combined with material , let's look at a scenario , Bank ATM to be constructed at a remote village , primarily it's a service but it also consists of civil works and other branding activity , in general vendor cant produce estimate until he completes job as he is blank on many hidden facts surprises, bank understands that says , once job is completed produce your estimate but take verbal approval from respective in-charge at every stage, job is done estimate is produced , PO will be released after a month once budget approval taken from finance dept. the whole process has no PO but vendor has to invest six months in advance , could you please let me know , how do you finance this kind of projects.

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