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Helping SMEs secure loan and more Even though the SME is considered a priority sector, they aren't well represented.

By Sunil Pol

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Understanding the serious concern of SMEs being often denied loans by banks just because they are not well represented, Pratapsingh Nathani with 20 years of experience in financial domain has launched LoanXpress. An online portal and the offline entity, the bank is focused on SME lending to enable SMEs across India to secure loans easily. In addition to the financial help, the company also has advisory services under the name Vermillion Finalytics. Hence, the company is on the verge of expanding its footprint across India through franchising while targeting to create a loan book worth Rs 1000 cr to Rs 1200 cr by 2020.

What inspired you to launch LoanXpress?

LoanXpress as a concept occurred to me in my last company, ING Vysya Bank. As the head of the DCM & Loan Syndication desk, I used to underwrite loans for AAA and AA rated corporates such as DLF, Shriram Transport Finance to name a few. I realized that there are a plethora of banks ready to lend to larger corporates. And the MSMEs didn't need an external financial advisory to fulfill their financial needs owing to the various schemes introduced by government for their development. It was the SME sector which was the most affected and neglected.

My concern for the SMEs grew to a point where I began interacting with senior officials from various banks and NBFCs for a deeper understanding on the lending scenarios in India, specifically pertaining to the SME sector. In my initial research, I understood that even though the SME is considered a priority sector, they aren't well represented. Hence, they do not get the attention they deserve from bankers. An SMEs requirement is not just raising funds, it is the much needed financial advisory which can make or break their businesses. This compelled me to come up with an online portal focused on SME lending to enable SMEs across India with advisory services along with funds. My 20 years in the financial domain have helped me create a module designed for a regular SME and to build trust which is a key factor in the lending profession.

Launched in November 2015 under the parent company Vermillion Finalytics, aspires to be a one-stop solution for the young and budding companies which need debt capital in the form of loans (secured and unsecured) and working capital finance.

Team LoanXpress consists of Ex-bankers, Analysts and Chartered Accountants who analyze every file with utmost diligence to offer the best service. With the current setup, we should be able to break even by June 2016.

Along with lending what are the services you offer to SMEs?

Apart from understanding the SME's requirements, providing them with relevant advisory services and arranging funds from Banks and NBFCs, LoanXpress also provides additional related services such as:

  • Teaser - A snapshot of the company that enables a lender to decide if he is interested in lending to the company
  • Project Report - A base document for investment decision-making, approval & planning the project and implementing the project
  • CMA Data - Details of current and projected financial statements of a loan applicant that provide a systematic analysis of working capital management to a Bank
  • Company Presentation - A crisp, clear, informative and attractive business presentation to visually appeal to people
  • Information Memorandum - A document to present a company to prospective investors giving a comprehensive, accurate and attractive picture of the company
  • Financial Model - A financial model that provides all key assumptions to an investor, corporate acquirer, and banks to asses a transaction's merits to determine the worth of the deal

These services help SMEs present themselves better in front of the financial institutions. With a team full of ex-bankers and analysts, our evaluation of the SME's documents and advice on the product increase their chances of getting a loan.

How did you raise the fund for your venture?

We are a boot-strapped company and my savings have fuelled LoanXpress. I have invested around a crore rupees in this portal. My pre-planning of more than two years has helped me manage the finances so that we will be able to successfully sustain till we break-even by June 2016.

What was the family reaction towards your decision?

My family has been extremely supportive of all my professional decisions. I believe, their belief in me and my decisions comes from my overall experience and my abilities. Moreover, I belong to a family of entrepreneurs who understand the risks attached with a new venture along with the importance of support from the family.

How many SMEs you have lent to so far? What is the ticket size? What are the prospects of the borrowers?

From the numerous loan applications we received from across India, we have built a pipeline of prospective client-base amounting to 235 crores. Additionally, we have disbursed loans worth 32 crores till date for 11 SMEs. Our first client was a mobile dealer from Vashi, Navi Mumbai who had been trying for a loan since quite some time. When he received the sanction letter, his happiness knew no bounds. We began wondering what it would be like to assist every needy SME. And that made us work harder.

The average ticket size of fund raising for the SME sector ranges from 50 lakhs to 10 crores. Our target for this financial year is charted at 1000 crore catering to 300-400 SMEs. Since we are targeting SMEs who need to raise funds for business expansions, we aim to help 300-400 startups, SMEs and MSMEs are struggling to raise funds from various banks and NBFCs.

What is the margin that you earn with every lending?

Our earnings are on case-to-case basis. For instance, we do not charge SMEs who have received a loan from an NBFC as the rate of interest they will be paying is on a higher side (15-22%) as compared to a loan received from a PSU bank. Moreover, our arrangement with the NBFCs ensures a payout of 1-2% of the loan amount as our earning.

If an SME has a strong case wherein we can raise funds for the required amount from either a public or a private sector bank, we charge the SME about 1–1.5% depending on our mutual agreement. A few SMEs have also offered us a stake instead of paying us processing fees. Such offers are evaluated as per their valuation.

What are your expansion plans?

We would like to cover the geography of the entire country via our online and offline model. Since a service like this is a need of the hour, we are open to the idea of opening franchises. This shall help us to penetrate all the pockets with our services. If truth be told, the reason behind creating an online model was to reach out to every nook and corner of India.

With the advent of internet in Tier 3 cities in India, we see our online model spreading its wings to the virgin cities in India who haven't been on the banks servicing list and till date approach local money lenders or landlords who charge a very high rate of interest which at times even costs them their lives. We also have plans to officially tie-up with SIDBI to widen our reach.

What will be the investment for franchisees?

There will be a one-time fee of 5 lakhs for anyone who wants to become our Franchisee. This amount includes a refundable deposit of 3 lakhs to be returned after a period of 3 years. The remaining 2 lakhs shall be the actual fees which will be spent on local marketing and promotional activities targeted on awareness which is required for any business to flourish.

What is your target for the next three to five years?

We target to service SMEs across India to create a loan book worth Rs 1000 – Rs 1200 cr (Approx 1 Billion Dollars) in the next three to five years.

How do you look at FDI allowed in E-commerce?

FDI is the need of the hour. The online retailers have been guzzling cash which has in turn created a dearth of capital in India. With the advent of FDI, the overseas funds shall help the e-commerce giants to grow further which eventually helps the nation strengthen its Forex condition.

However, for the FDIs to be a success, the e-commerce industry needs to discontinue the heavy discounts as a marketplace such as this shouldn't encourage discounts. This move shall give an advantage to the large brick and mortar stores while increasing a healthy competition. It will end up creating a common playground for the online as well as offline players.

How are you promoting LoanXpress?

LoanXpress is focused on SMEs who wish to raise funds for business expansion or new ventures. Hence, our marketing strategies are directed chiefly at materials they consume on day-to-day basis. We are active inMedia and Social Media and have opted for Digital Marketing along with Email campaigns. Additionally for branding and awareness, we conduct seminars and press conferences in smaller cities, participate as guest speakers in affiliated seminars, distribute pamphlets in industrial areas and have plannedroad-shows across India.

This shall help us create the desired brand awarenessand reach out to SMEs in need of finances.

What is your plan to expand LoanXpresson on the digital platform?

Before we launched LoanXpress, we did a detailed study to understand the lending scenario across the world. We observed that technology has deeply impacted the lending process resulting in an investment of about 9.5 Billion dollars to develop the fin-tech industry (financial technology). This has helped more than 800 startups to raise desired funds.

For a developing nation such as India, while the urban India is well aware of the fin-tech solutions, the rural India will take a while to accept it. For the same, we have created an online and an offline module to cater to SMEs across India. Our digital platform has been created on international standards while keeping it simple and lucid for India's SMEs to benefit from.

How do you see the credibility of the banking is reducing with more start-ups and payment banks entering the lending space?

Many fin-tech startups are currently dominating the debt financing markets which were initially handled by public and private sector banks. If the banks don't take corrective measures, the day won't be far when the banks will only remain a treasury, putting an end to offline expansion and manpower recruitment.

Moreover, an algorithm helps an individual take decisions pertaining to mutual funds. An algorithm works on the basis of analyzing the past performances, current trends and future prospects while suggesting a viable fund. This knocks down the role of a fund manager who might have a vested interest in selling a particular fund to an investor. Such instances have resulted in investors opting for algorithms instead of a human interface.

Having said this, as of today, India needs a human interface to build the trust factor and work flawlessly in the lending space.

Sunil Pol

Correspondent, Entrepreneur India

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