How Loans4SME is solving credit problems for small businesses in India
With a product suite tailored for high-growth companies, Loans4SME extends the source of debt capital beyond banks to venture debt funds, impact lenders, and family investment offices.
At a glance
Startup: Loans4SME (Aurus Lending Solution Pvt. Ltd.)
Founders: Simmi Sareen and Balawant Joshi
Year it was founded: 2016
Where it is based: Mumbai
Sector: Lending
Problem it solves: Solves for financing of businesses and SMEs
Funding: Undisclosed
Various studies show that a credit gap of 56 percent exists in the micro, small and medium enterprises (MSME) finance sector in India. That gap is what Simmi Sareen wanted to bridge – and tap - when she thought of starting Loans4SME in February 2016. Loans4SME is a platform for small businesses to raise debt capital.
This wasn’t a new industry for Simmi, who has close to 18 years of experience in credit and lending. Prior to starting Loans4SME, Simmi was the risk head at Grameen Impact India, and, before that, she headed the venture debt business at financing firm IntelleGrow.
“Working for so long in the credit and lending space, it was clear to me that financing was one of the biggest growth challenges faced by companies. What was different about 2016 was that a new supply of capital had started to come into the market in the form of digital lenders, impact debt, and venture debt funds,” she says.
Looking at the $400 billion market gap, Simmi thought of jumping right in and starting up. Simmi was joined by Balawant Joshi, the Co-founder of Loans4SME whose expertise is in the fields of energy and renewables. A serial entrepreneur, Balawant also helped in founding energy tech company Enfragy as well as rooftop solar company, Origin Solar.
Facilitating loans for SME
Loans4SME has built an alternative lending platform that provides cash-flow-based financing options to high-growth companies. Being a curated marketplace, the company is expanding the source of debt capital for SMEs beyond traditional methods like banks to include venture debt funds, impact lenders, and family investment offices.
While providing advisory solutions, the company also helps SMEs in obtaining varieties of loan products from their curated lenders. Its target customers are high-growth companies run by professional founders.
“While building we took a unique approach to scaling our business when we decided to not build our own sales teams, but rather rely on the ecosystem that our service is meant to benefit,” Simmi says.
At present, customers discover Loans4SME through interactions with their networks, be it their investors, incubators, accelerators, etc. This way, an element of trust is built into the process.
Speaking about the philosophy behind lending, Simmi adds, “Scaling in a lending business is not only about disbursing loans; it is about disbursing the right loans that get repaid. Our origination strategy, credit assessment processes, and technology are all built to ensure that we scale responsibly. It seems to be working: we have zero NPAs in the portfolio of loans we have facilitated at Loans4SME.”
The products
The company provides collateral free loans, including ultra-short-term working capital to long-term project finance up till Rs 20 crore.
Their long-term capital financing includes products like venture debt and operating lease with a funding range of Rs 1 crore to Rs 20 crore and Rs 10 lakh to Rs 3 crore, respectively.
Their short-term capital financing includes products like work order financing, invoice discounting, vendor and PoS-based financing in the range of Rs 1 lakh to Rs 50 lakh.
The differentiation
According to the company, there are two key innovations that differentiate the platform from other lending platforms and debt solutions.
It begins with assessment. Their proprietary algorithm uses 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; saving time on processing a loan.
Another differentiation is that borrowers can access not just traditional lenders like banks but also NBFCs, impact debt, and venture debt funds.
Simmi says,
“We have built a range of alternative lending options as our supply of capital. Not only the companies who come, but also SMEs have a higher probability of getting a loan. Further, they get a loan based on their business and cash flows.”
Till date, Loans4SME has worked with more than 200 enterprises in the last 18 months and closed $30 million of loan transactions.
Lending and credit continues to be a hot market in the startup ecosystem. With bigger players like CapitalFloat and LendingKart, the market is filled with credit solutions trying to capture a large piece of the pie. Will Loans4SME be able to cut itself a larger share? It’s making all possible efforts to do so.