Capital has always been a constraint for small-and-medium enterprises (SMEs). India has more than 60 million SMEs, which contribute more than 40 percent to its GDP.
But, less than 10 percent of them have access to formal credit.
Banks are reluctant to lend to small entrepreneurs because of their lack of credit history or even a steady income flow. Add to that, the lengthy and complex lending processes carried out by banks and NBFCs make it even more difficult for SMEs.
Even where credit is available to them, from informal sources, for instance, they have to pay exorbitant interest rates (which can go up to even 80 percent) that challenges their growth prospects further.
As a result, most remain perennially strapped for cash, and fizzle out soon, sometimes even before the completion of a loan repayment cycle. In the last three years, however, many alternate lenders focused on SMEs have mushroomed in India.
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Loanzen is one such startup focused on the SME lending space.
Founded in late 2015 by IIM-B alumni Madhu Sudhan and Venkatesh Sankararaman, it began as a peer-to-peer lending marketplace before pivoting to its current form — a logistics financing startup for small and individual fleet owners — in 2017.
Both co-founders recently transitioned into a non-executive role, with Loanzen roping in Anil S as its new CEO. The Bengaluru-based startup, however, refused to divulge further details on the management transition.
The lending process and what it fixes
Loanzen caters to 90 lakh small fleet owners, who account for more than two-thirds of India’s inter-state and intra-state logistics industry.
Most of these own pre-used vehicles, and struggle to get finance to buy them. “The truck owners go from not owning any vehicle to paying huge interest rates on loans per annum. There is no in-between,” CEO Anil tells YourStory.
“Because of the rapid growth in ecommerce, intra-state transportation is in focus now. But fleet owners need a constant stream of capital to grow,” he explains.
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That is where Loanzen steps in.
Its proprietary credit underwriting process takes into account the value of a vehicle, which the startup claims is a key differentiator in the market. Other factors like demographic details, kilometres travelled, load transported, repayment history, etc. are also taken into account while building the credit score.
“These factors help project a potential customer’s creditworthiness,” says Anil.
Besides vehicle financing, Loanzen intends to service all needs of fleet owners, including inter-state licences, tyres, repair, maintenance, petro cards, and more.
Anil says, “The goal is to fill the gap between supplier and revenue generation for vehicle owners so they can sign up for a constant source of revenue and support.”
Operations, growth and expansion plans
In three years, Loanzen has served about 500 SME customers. Its current order book is Rs 15 crore, and the average loan ticket size stands at Rs 4 lakh. The loan repayment cycle is from one to five years, and SMEs pay a 20 percent interest rate per annum. and r
Almost 70 percent of Loanzen customers come without any credit history. “We are helping them build one. They may not have formal credit history, but come with loads of aspirations, intent, and family commitment,” says Anil.
The startup plans to grow its order book to Rs 100 crore and reach 2,500 customers by the end of this year. Loanzen further expects a 10x jump in loan book to Rs 1,000 crore by 2025. It is also looking to expand its team by 50 percent.
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Loanzen is also looking to add new lending products like vehicle insurance to its platform, and is in talks with partners to facilitate that.
“We are well capitalised, and our lenders and investors have been an absolute support. We are expecting a 5x growth in customer base this year,” says the CEO.
The ongoing pandemic may not deter its growth plans. Loanzen believes lending activity will resume once the lockdown is lifted in May, and a huge “pent-up demand” will unravel after COVID-19. SMEs will be looking to buy more products beyond vehicle loans.
Anil explains, “We see a surge in demand for other products. If we can extend health insurance to the families of the drivers, it would be a great opportunity. The end goal is to have an array of products that can impact people’s lives and livelihoods.”
Loanzen is also planning to raise debt funding up to $20 million this year.
Funding and market opportunity
In November 2019, Loanzen had raised $3 million in funding from Zephyr Peacock India Growth Fund and existing investor Kae Capital.
It plans to deploy the capital to build new technology and data analytics, scale operations in existing locations, and expand to new markets in South India.
“We expect Loanzen to become a leader in logistics financing, and support over 15,000 customers in the next three to five years,” Abhijeet Kudva, MD of Zephyr Peacock, said at the time of funding.
The CEO is, however, tight-lipped on its financial numbers.
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“It is too early to call the shots on profitability,” he says. “But we are spreading into 80 percent of Karnataka, going deeper so that everybody has access to logistics. By the end of 2021, we want to be present in three to four states,” he adds.
Loanzen competes with alternate lenders like SmartCoin, Aye Finance, Quikkloan, InCred Finance, Lendingkart, NeoGrowth Credit, and others in a market valued at $40-50 billion. PwC estimates that these fintech startups have the opportunity to lend to more than nine million GST-registered SMEs.
Another study by MAPE Advisory Group adds, “Even five percent of the unmet SME lending requirements in India could be a $15 billion opportunity by 2020. The system has the liquidity – but banks do not have the processes or risk management framework to enable lending to these firms. This is where alternate lenders come in.”
Loanzen has identified the opportunity. Now, it’s just a matter of riding the tide.
(Edited by Teja Lele)
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