The e-commerce industry, with its B2B and B2C model, is gradually occupying center stage in the Indian transaction space. The e-commerce space predominantly comprises SMEs who are now taking up this lucrative business space, owing to its reduced costs and wide reach in terms of customer base.
However, in e-commerce, there are essential operational costs involved namely a website that hosts all the products and services on offer. One would also have to develop a database of suppliers to procure the goods from to deliver to the final customer. Further, skilled talent would be required to manage and maintain an e-commerce site. Thus, one would require an SME loan to run the online business and expand into new geographies. For example, e-commerce sites often host region-specific products on the website. This requires negotiation and entering into contracts with local sourcing units and suppliers.
If an e-commerce business owner were to approach a traditional bank, it would be difficult to obtain a business loan, simply because banks traditional extend secured loans against valuable, physical assets. However, an e-commerce player has a virtual asset of the website, which cannot be provided as collateral cover. Thus, approaching a fintech lender is the best option. Further, fintech lenders provide additional features like flexibility on repayment, fast processing, and convenience of accessing capital online. We shall study how e-commerce business can benefit from quick SME loans:
1) Loan option ranging from ₹1 lakh to ₹1crores
Fintech lenders cater to a wide range of e-commerce merchants. Each merchant has a unique capital requirement based on their business needs or growth stage. Thus, the ticket size offered varies, satisfying the working capital requirement of every kind of online seller-small, medium or big.
The funds can be suitably applied for varied business needs namely supplier payments, inventory purchase during peak seasons or festive time or product diversification.
2) Tailor-made credit option
Fintech lenders leverage the latest technologies and customer insights to underwrite unique business loans to each customer based on the business performance and customized business needs. The tenure varies from 6 months to 36 months. The merchant is extended a specific loan amount based on their monthly sales and projected revenues.
3) Prompt loan approval with digital processes
Fintech companies are able to efficiently use technology throughout the loan process from the start of the loan application to the final loan sanction on approval. The loan is generally sanctioned and credited to the registered bank account of the borrower within 3-5 days. It must be kept in mind that the e-commerce business is highly dynamic and fluid and a delay of even a few hours can make a huge impact of winning a contract.
Borrowers can apply online for a business loan using their mobile devices or logging into the website portal of the lender. After filling the form, one has to digitally upload the KYC documents. Thus there is no need to physically visit the lenders’ office premises.
5) Attractive offers on the credit as a % of sales
Many fintech lenders offer attractive offers to online merchants applying for ‘Online Seller Finance’, namely availing a loan of a certain percent of the number of sales they make on e-commerce marketplaces. For example, if the seller makes ₹10 lakhs in sales per month, the seller can receive working capital funds of up to ₹20 lakhs. This timely funding can boost growth on the marketplaces, helping the seller to increase their business exponentially. Higher the sales, the higher the eligible loan amount and resultantly higher are the chances of converting business opportunities.
6) Absence of collateral
The credit product is collateral free. The borrower need not mortgage any security or asset to avail this loan. Funds are granted purely on the business performance on the marketplace and not on their physical asset base. Merchants can thus obtain SME loan without the anxiety of losing their securities in the event of a loan default.
Financing the online seller segment is a relatively new addition in the lending space. However, given the leadership position of e-commerce players like Flipkart and Amazon, financing this space is expected to gather significant momentum in the coming days.