With Rs 100 Cr, three CAs and a data scientist are fixing loopholes in the SME lending market

FlexiLoans is targeting a market segment that traditional banking has been wary of. While the competition in the SME loans space is fierce, data shows there is space for all to build their dreams.

Low or absent credit score, lack of collateral, and requirement of short-term flexible loans – these characteristics most often define micro, small and medium enterprises’ borrowing. Understandable then, that banks have been wary of lending to them.

Enter fintechs to create the bridge, catering to the finance needs of SMEs and MSMEs.

One such is FlexiLoans. Friends Manish Lunia, Ritesh Jain, Deepak Jain, all chartered accountants, and data scientist Abhishek Kothari saw SME loans as a huge opportunity, and launched the digital lending startup in October 2015 which offers working capital finance for SMEs and MSMEs.

Banks are not keen on small ticket loans of Rs 5 lakh to SMEs, and customers with CIBIL scores less than 700 are largely ignored. What was ironic, Manish says, is that,

“Bureau scores are out there for only 20 percent businesses... We felt that there could be an easier way out to lend these loans. Plus, data-based lending can take off a lot of if(s) and but(s), reducing the dependency on credit agencies.”

Funding MSMEs

In its first avatar, FlexiLoans operated as a marketplace model, but over time changed strategy to lend to small business and vendors.

In October 2016, the company got its big push as industry stalwarts Sanjay Nayar, the CEO of KKR; Vikram Sud, former head of operations and technology at Citibank; Anil Jaggia, HDFC Bank Chief Investment Officer; and Narayan Seshadri, ex-MD of KPMG’s advisory business invested Rs 100 crore. As part of the deal, EpiMoney acquired 20 percent stake in FlexiLoans.

According to the founders, the differentiation for FlexiLoans is the way in which it lends. “We work on partnerships and we are sticking to them,” says Manish.

FlexiLoans has 65 national partnerships, and has partnered with e-commerce websites like Flipkart and ShopClues, along with Point of Sale (PoS) payment system providers like PineLabs, lending to their merchant base.

These partnerships open up merchants’ transaction history to FlexiLoans, allowing the startup’s algorithms to assess credit worthiness better. Manish explains the partnership model opens a 2-million-plus potential target segment for the company.

In April 2016, the company partnered with taxi-aggregator Uber helping its drivers buy new smartphones. Partnerships also help safeguard FlexiLoans’ loan book from defaults, as partner platforms assume equal responsibility to extract loans from merchant partners.

Online merchants make up only 40 percent of the overall customers, and the remainder are offline mom and pop stores, targeted either directly or through PoS providers.

The customer demographic 

The average ticket size of loans is Rs 5 lakh to Rs 6 lakh, and Manish explains the typical demographic of a customer is sub-35 years. These are traders with a turnover of between Rs 5 lakh and Rs 50 crore.

Companies applying for a loan from FlexiLoans should have been in business for six months, as compared with banks’ requirement of three years. The founders say loans start from Rs 50,000, and are usually disbursed within 48 hours of application.

On its website, Flexiloans claims it can provide EMI-based working capital loans up to Rs 1 crore for a 36-month tenure, with a monthly or weekly repayment option. The average rate of interest starts from 15 percent.

Manish did not disclose the company’s revenue, but said the platform makes around 2.5 percent on every loan disbursed.

Product lines

The startup offers various loans such as working capital loans, loan against PoS transactions, supply chain finance, and line of credit. In May this year, the startup acquired CreditPeriod.com, a supply chain financing platform. Through this acquisition, it plans to launch invoice lending credit product for SMEs in the next quarter.

Manish adds,

“Through this product, we want to align credit to cash-based needs.”

With a monthly repayment method, loans in this category can go up to Rs 1 crore with a tenure of 30-120 days. FlexiLoans is also planning to launch a ‘hybrid’ model of funding, where it co-invests in a SME along with other financial institutions. Already competitors like Capital Float are executing this method of lending.

Of funding and metrics

On the Rs 100 crore fund raising, the founders said the funds are being used to bolster the team, as well as build the loan book. The company, at present, gets more than 4,000 applications and disburses around Rs 20 crore every month. It has so far processed over 12,000 applications across 90 Tier I to Tier III cities, serving close to 2,000 SMEs.

With an indigenously-built credit scoring application, FlexiLoans has an 85-member team. Boasting of a 95 percent repeat rate, the firm is looking to disburse a total of Rs 300 crore in the next 12 months. It is also looking to expand its presence to 500 cities, and reach a total of 200 partnerships.

There are around 51 million SMEs in the country, which contribute close to a third of the country’s GDP. According to RBI estimates earlier this year, the total fund requirement of SMEs was around Rs 26 lakh crore, but banks account for just 40 per cent of that.

The opportunity put forth hasn’t just attracted FlexiLoans, but also SAIF Partners and Sequoia-backed Capital Float, which in August announced it had raised $45 million from investors.

The founders of Capital Float had then said they were originating over Rs 200 crore in disbursals every month and over the last year alone, had disbursed loans of Rs 2,500 crore to 12,000 plus customers across 300 cities.

Other big names in the space include LendingKart, which has been raising funds over the course of the year. Newer NBFCs include names like TABCapital, and CoinTribe, which are focused on the SME segment.

Website: www.flexiloans.com