Build & Grow: How HSBC aims to enable growth and liquidity for startups in the new normal
The Indian startup ecosystem – hitherto heralded for its rapid growth – is facing its biggest challenge yet, as its very survival is at stake due to the COVID-19 crisis. This unprecedented circumstance has created a new business dynamic that calls for agility, pivoting to new business models, new ways of reaching out to customers, setting up remote-work arrangements, and whatnot, to survive. Companies that have acknowledged and embraced this shift, more often than not, have pulled ahead of their peers in terms of revenue growth, profitability and relevance.
Another key phrase that has emerged is ‘business continuity’ or how a business will continue operating during an unplanned disruption in service. Aspects of finance, of course, take centre-stage in this dynamic and will be one of the growth drivers for the months to come. To help startups thrive in the new dynamic, HSBC India and YourStory created Build & Grow - a new series under the Money Matters with Shradha Sharma umbrella that will help businesses leverage financial ingenuity from experts to leverage it for their businesses.
The Build & Grow series is presented by HSBC - a bank that has adopted the startup mindset proactively: from managing cash flow and liquidity, to accelerating growth and helping them go international. Startups are now leveraging the offerings of strategic banking partners to power their business continuity. In the first episode of Build & Grow, as part of Money Matters with Shradha Sharma, Prakash Jaiswal, Country Head, Business Banking, HSBC India had a few valuable suggestions on how banks like HSBC can be growth enablers for startups.
An ally startups can bank on
One often under-leveraged option for startups is the banking partner. A startup’s relationship with their banking partner can play a pivotal role in its growth journey (and vice versa). The banking partner can act as an important ally in powering their business and the seamless management of the funds, while also pointing them in the right direction whenever required.
To tap into the startup economy, traditional banks have begun to reimagine financial products and propositions that are custom-made to meet the requirements of startups. Classical models of assessment don’t always match that with the unique machinations of a startup. We are already seeing this play out in India with major banks launching products that seek to meet the very specific needs of a startup.
However, there often exists a vast plethora in the services offered by banks to startups, which are usually bundled based on the startup’s stage (early, growth or late). Having raised capital, startups in growth and late-stage have access to many more banking services in comparison to startups that are in early stages, and thus, early-stage startups often struggle to get priority or premium banking solutions.
HSBC India’s latest offerings for startups level the playing field with a suite of banking products. HSBC contends that while simple and agile banking is the need for early stage startups where they intend to onboard businesses through knowledge-based ecosystem engagement, a bespoke, customised banking solution is the approach for ones in growth stage and late stage. The bank has smartly identified startup needs, which include — unicorn-grade customer service from Day 1, cash flows (receivables & payments, both domestic and international) management with new age digital solutions. Along with this, they also offer solutions to manage forex and regulatory requirements associated with capital raising and scale and expand to international markets, supported by a strong and dedicated relationship team, that are more in tune with the needs of startups.
The shift in startup-bank engagements in the new normal
The new normal has ushered in new dynamics of engaging with the banks. As financials take the centre-stage in business growth and continuity conversations, banks realise that they can join an entrepreneur’s journey as their partners on the path to progress. The way that banks solicit new business is also changing. Banks are adopting a startup mindset to pivot from traditional ways of working by embracing digital transformation. It’s important that startups meet them halfway and form a symbiotic relationship that has short and long-term benefits for both sides.
How entrepreneurs can make a better financial case for themselves
While some banks may be better at meeting the needs of startups than others, the ground reality is that early-stage startups don’t often fit the lending profile of the traditional banking system. However, Prakash has a few pointers for startups to improve their standing. Cash flow management has to be a priority for startups and can be made more effective by looking at ways to manage DSO (Days Sales Outstanding), renegotiate credit terms with their vendors and reduce costs via the partnership ecosystem. Strengthening the balance sheet also enhances a startup’s ability to borrow, or borrow, he says.
Prakash also recommends working with financial partners, both on the debt and equity side who are familiar with your business. Talking it through with known financial partners can actually be fruitful for both parties,” he adds.
Another financial tool can be handy in dealing with current cash flows are corporate cards.
“In most cases, startups do not have banking coverage to readily access funds for crucial indirect payments – for vendors or travel, and technology expenses. To tackle this problem, HSBC offers a procurement card, which offers short-term working capital support that can help you grow your business digitally as well.”
Prakash advocates a combination of strategies to boost liquidity that include balance sheet efforts, Profit and Loss (P&L) efforts, debt and equity financing, and most importantly, Days Sales Outstanding (DSO).
Growing by expanding across global markets
Prakash believes that regardless of whether you’re a startup or an MSME, there’s great value in looking towards the export market for growth. “Firstly, it diversifies your customer location. The domestic demand for your product or service might take time to revive, and it helps to diversify your risk. Secondly, you stand to gain a lot by meeting international standards, be it the quality of manufacturing facilities and output,” he adds.
The bank also has a network of local businesses, experts and professionals across 54 countries and territories that cover both developed and developing markets. This means that startups can leverage the insights offered by local markets, and the knowledge of international banking regulations through HSBC partners that it has built through its decades-long presence in these markets. So when you think of taking your business to new markets, HSBC will help you connect with global opportunities. Startups can fuel their growth strategy by accessing its global footprint and its network of financial experts.
“Partnering with HSBC helps you get easy access to international markets through the bank’s international business guides, insights from local markets, local business, introductions to professional partners, supply chain financing solutions for sales to large corporates, and more, via your dedicated relationship manager.” says Prakash.
HSBC’s banking suite can be a valued partner for startups in their financial journey, as it has the commitment and expertise to provide end-to-end support for forex transactions, regulatory reporting, execute foreign direct investments (FDI), overseas direct investments (ODI), carry out structured escrow transactions and give access to a series of global and domestic startup forums, investors and technology hubs.
“Regardless of whether it’s small steps or big leaps – wherever your ambitions take you, we will be there at every step,” adds Prakash as he signs off.