How SMBs are addressing credit gap and empowering growth
The past few years have witnessed tremendous evolution in B2B commerce. While 70 percent of B2B retail businesses are still un-organised, small and medium businesses (SMBs) are disrupting the way they operate due to increased mobile and internet penetration and the mushrooming of marketplaces.
The pandemic further propelled SMBs to explore new online models to thrive in their day-to-day business. However, it also exposed vulnerabilities in the industry and disrupted the entire retail supply chain.
Due to the shortage of capital flow impacting their revenue, SMBs continue to face hindrances in their daily operations. Today, 80 percent of businesses lack access to low-cost formal credit from traditional sources. With factors such as capital crunch, transaction cost, risk perceptions by banks and financial institutions, extensive paperwork, and lack of credit history, their struggle to avail finance is hindered, thereby creating a massive credit gap of over $219 billion.
Hence, in a country where we are witnessing a shift in how SMBs transact, it is now imperative to address this impending issue of easy access to credit. With businesses of different sizes having different credit needs, here is how easy credit can elevate Indian SMBs today.
Affordable and transparent credit access
High-risk penetration made banks reluctant to lend to SMBs without collateral. However, SMB lending has seen a paradigm shift over the past few years with the entry of new, innovative alternative lending platforms and new-age fintech. Increasing awareness of digital transactions coupled with simple integration of APIs into marketplaces has opened new opportunities for such players.
With SMBs looking for a hassle-free, convenient solution that provides them with a way to service their daily requirements, Buy Now Pay Later (BNPL) has the potential to address their credit needs. Coupled with flexibility in repayment terms offered by BNPL players, SMBs can now be better positioned to run their businesses smoothly and service their requirements in real-time and without any financial strain.
Buy the inventory when required
Compared to offline space, the terms offered by distributors or vendors to SMBs are entirely different in digital space. SMBs purchase goods and services to further sell them to the end consumers. However, delayed payments and longer sales cycles accentuate the need for credit in order to purchase the inventory.
Hence, with increasing SMBs relying on digital marketplaces for their business needs, easy credit could support their growth by eliminating the burden of liquidity crunch.
Bringing SMBs into the formal ecosystem
Most Indian SMBs are still unorganised and unlikely to have proper balance sheets, formal revenue streams or banking relationships. However, we are witnessing increased digitisation of businesses and high reliance on ecommerce.
It not only pushes them to the formal ecosystem, but the abundance of data being generated enables fintech and ecommerce firms to collaborate with financial institutions to help access easy credit to SMBs. Analysing cash flow data against traditional balance sheet data, today, financial institutions are in a position to extend credit to each sector-specific SMB as per their needs.
The rise in smartphone and internet penetration has opened a new chapter in the B2B commerce of India. With listings on several ecommerce platforms enabling SMBs to expand their geographies and consumer portfolio, we are on the cusp of a new-age retail revolution.
However, for a smooth course, the industry must collaborate and simplify access to credit for SMBs. The same has the potential to make them more capable of overcoming challenges and building a business that can scale sustainably, thereby catapulting the country’s ecommerce as well as allied sectors’ growth.