Madhu Sudhan, Cofounder and CEO at Loanzen
Tell us something about Loanzen. How did it start, the services it provides, etc…
There exists a fundamental financing gap in our MSME sector; furthermore small businesses are unable to apply for short term working capital loans. Their size makes them ineligible for loan considerations. Here at Loanzen we exploited this opportunity and created a platform to bridge this gap.
We enable small businesses that don’t have collateral to borrow funds against expected income. The only asset that these businesses have is their invoices, which is its expected income. Loanzen provides short term financing till those funds are freed up. The instrument used is ‘Invoice Discounting’ and the payment is expected from the company on receipt of funds.
Our target audiences are the SMBs in both manufacturing and service sectors, who are at least a year old in operations. We accept invoices that are raised on companies of good standing (MNCs, listed companies are fast track approved).
Loanzen peer2peer lending platform was launched in January 2016 – since its Inception the platform has given out loans to eight SMB’s one of which is a manufacturing company in Karnataka.
What’s your business model like?
We have developed our business model around the concept of short term unsecured credit facility. The two key aspects to note here is that the loans we provide are:-
- Unsecured loans.
- The loans are for short durations ranging from 30 to 60 days. The core idea has been to address the short term working capital requirement of SMEs that otherwise have no other option for borrowing.
How is your model different from the traditional investment solution providers or existing Fintech startups?
We want to be the go-to firm for SMBs to access easy working capital loans. We understand that the banks fail to consider millions of businesses due to their strict eligibility criteria. These businesses are growing exponentially in terms of sales, but have their capital locked in long dated invoices. This is where we exist to make a difference in offering working capital loans against invoices.
We typically enable financing of between Rs 5-50 lakh per company for period of 30-120 days at an interest rate of between 1.5% to 2% monthly payable for days of funds used.
FinTech is in a nascent stage in the country; it is just beginning to take shape. Loanzen is a peer2peer lending ‘marketplace’ where we have we have tied up with NBFCs and private limited companies that are interested in lending to quality companies.
What are the investment issues faced by small business in India and how Loanzen is helping to address the issues?
The investment challenges that the small businesses face in India would undoubtedly be the availability of large capital to back these investments. Our operation model allows us to fund the short term capital requirements of these businesses. This would enable these small businesses to meet the daily operating expenses without having to wait for the long dated invoices to settle.
However, when it comes to investments, the best place for the small businesses to get such kind of large capital for long term would be the Banks. Peer2peer lending platforms like Loanzen can cater to the short term requirements.
How many customers do you cater to at present and what kind of benefits have they received through Loanzen? Can you share some example/case study?
All our customers at present belong to the manufacturing/ service sector that approach us for loans in return for discounting of their invoices. So far we have had an encouraging number of borrowers that have availed our loans. We’ve also had around 400 new members who have registered with us on our website the in the last month alone.
Case Study – Manufacturing (small scale) relies on Loanzen
An incorporated company in the northern city of Belgaum, Karnataka, who’s into cutting edge fabrication, machining, foundry operation and design, caters to large industries in India. An ISO 9001:2008 certified company; it houses many laborers to cater to the demand of steel and castings from across the country.
This manufacturing company registers bulk orders and executes them on time, invoicing their customers on lengthy pay terms, sometimes up to 120 days. Majority of players in the manufacturing sector tend to sway towards longer pay cycles. Small scale manufacturing companies of such ilk tend to wait for long periods to recover payments, creating a huge gap in cash flow.
The company reached out to Loanzen for working capital loan. Since the application, credit analysis, and disbursal processes were securely conducted online, they could access the loan of Rs 10 Lakh within a week. A short term loan, to be repaid within two months turned out to be the ideal gap financing allowing the manufacturing company to pay overheads as well as receive payments on long dated invoices.
Customer qoute
“Short term loans help us deal with day to day cash flow troubles. The entire process of doing it online helped us get funds quickly.”
What are the unique challenges that you face while acquiring new customers?
The biggest challenge by far has to do with the awareness around availability of a ‘working capital lending platform for SMB’s’; which is absent in general. The SMB’s today are aware of the hiccups to get working capital loan from traditional banking sources, nor would they like to go to ‘traditional money lenders’ – Loanzen is filling the sweet-spot which we are confident that as the awareness grows we would see many more SMBs reaching out to us.
Not all SMBs are tech savvy and you are a tech based start-up. How are you reaching out to your customers?
We agree the SMBs investment in technology is not as seen in a growing or a large enterprise, however all our target audience are using ‘smartphones’ ‘emails’ which is all they need to know. The SMB needs to come to www.loanzen.in – upload documents asked for, wait for an approval and the capital is transferred to their bank accounts. Yes it is as simple as that.
Several small traders face huge loss and many shut down the business because of the long credit period in the industry. How can Loanzen help the companies in such situation?
We have built our entire lending model around this pivotal aspect- reduce the time involved in disbursing the loan. This is why every process in our system (starting from the time these borrowers register on our website to the transfer of money to their bank accounts) is all streamlined to take as little time as possible. By ensuring there is minimal lag in between the application and meeting their capital requirements; we hope to empower these small businesses to move forward with their daily operations and thus grow bigger.
Your vision…
To become the preeminent automated lending platform in India. We strive to accomplish this by being able to provide the capital required for small businesses to grow.
Your future plans…
It’s a really big market out there in the alternative funding space. Based on the total demand for short term working capital and the present portion of that demand which is being met, we assess that there is a Rs 4.7 trillion market that has so far remained alienated. This market is also set to grow considerably as more and more firms join the MSME category. The government has also laid emphasis on promoting entrepreneurs and the growth of MSMEs. In the light of these developments, we are optimistic that we are well positioned to address this growing market.
Additionally we are also looking at exploring alternatives. Plans are also in the pipeline to diversify from Invoice discounting to working with the travel industry and car aggregators in addressing their short term capital requirements.
