Nexus Venture capital-backed Biz2Credit, an online marketplace which brings together an array of lenders with entrepreneurs seeking funds, aims to partner with the top 20 banks across the globe and grow its SME user base by ten-fold in the next three years.Rohit Arora, Co-Founder and CEO, Biz2Credit
While India may not have the most robust alternative lending industry in the world, the size of its SME population and the fact that access to finance continues to be a key constraint for them, caught the attention of brothers, Rohit and Ramit Arora. Eventually, they formulated a business model that would offer working capital financing solutions for small businesses.
But, before that, let’s look at some statistics that will put things in perspective: India has a huge market of around 29 million small businesses, and SMEs contribute about 45 per cent to the county’s industrial output and 40 per cent of total exports. These small enterprises depend on relatively unorganized financing much more than large enterprises and the chances of small businesses having access to a bank loan here is much less in comparison to what it is for a mid-sized business. “When compared to a large business, it goes further down. Moreover, other options of SME finance (leasing or factoring, equipment financing and more) are also not very common here,” says Rohit Arora. He continues, “As a result, entrepreneurs often resort to using personal credit cards, home or equity loans or their own savings to fund their businesses.” This clearly indicates that India is on track to see an expansion in alternative SME finance which is already being experienced in other markets like Europe and the U.S.
Hence, Biz2Credit was set up by the brothers to help Indian entrepreneurs quickly secure the funding they need to grow their businesses. It is an online marketplace that aims to bring together an array of lenders and entrepreneurs seeking funds and individuals to arrange online SME loans, lines of credit, equipment loans, working capital and other business funding options as well as consumer loans. “Digital finance is expected to make up at least 10 percent of the financing market in India, worth, in total, US $300 billion today. This is a huge opportunity that we are leveraging,” says Rohit. In fact, the company has so far arranged over US $1.4 billion in funding in small business loans.
It has over 200 employees and has global patents on the technologies it has developed.
Reading the fine print
Biz2Credit ventured in to India in 2008 (the company was set up in the U.S in 2007) with a team of about five and is now 150 plus strong. To make its solution India-friendly, the company developed a customised platform which has integrated various data sources including Tax data, Aadhar Card, bank statements, credit data from CIBIL, Experian and social media data. Biz2Credit has also developed a customized version of patented Biznalyzer score for Indian SMEs which can be used for benchmarking their businesses as well as for doing risk-based pricing.
On the operational front, it is ramping up its team and plans to build up a team of more than 250 by year-end 2016. It aims to help the existing 2.6 crore SMEs in the country, who, once they’ve registered on the site, get access to loans and compare from the various financing options, to choose one that’s most suitable to them. The company uses a patented technology to match lenders as per the credit and cash flow criteria of each loan application, offering the borrowers a wide range of options to choose from. “We make the loan process online, paperless, quick and safe. Fund seekers can apply, choose a lender, get approved and receive funds within much shorter timelines as compared to traditional loan processes,” says Rohit.
There no application or submission fees or fees for using any business tools on the site. “Lenders pay a fee if their financing transaction closes,” says he. Biz2Credit’s platform includes non-bank and bank financing products. For most non-bank financing products (depending on deal size), Biz2Credit gets a transaction fee from the lenders, payable at the closing of the transaction. For most bank financing products, banks pay a closing fee to Biz2Credit when the transaction closes. For certain commercial real estate loans, they have to pay an origination fee at loan closing.
The new trends in SME financing are getting influenced by the digital revolution, which includes analytics-based, scorecard based lending, peer-to-peer lending and various other tools
The company’s network includes 1.6 million users, credit rating agencies such as D&B and Equifax, and small business service providers including CPAs and lawyers. In April this year, Biz2Credit and Tata Capital joined hands, expanding online access to finance for small businesses in India. With this tie-up, borrowers can now take loan offerings from Tata Capital on Biz2Credit’s online marketplace. The company is also associated with BUSY Infotech Pvt. Ltd. and TaxSpanner; Axis Bank, DCB Bank, Bajaj Finserv, Indiabulls, Deutsche Bank and Bank of Maharashtra.
Talking about the company’s marketing strategy, Rohit says, Biz2Credit has rolled out a digital marketing strategy in India as well as on ground marketing with CAs and Industry associations. The company is planning to roll out a Radio and TV Campaign later this year, as it takes its platform to a national level.
Not without challenges
Unlike European or American markets, the Indian digital lending landscape has its own sets of challenges. One is, getting access to qualitative data. “The Indian market has large breaks in financial data availability. We have a credit underwriting process in place, but there is a shortfall of qualitative data. More than half the population does not have a recorded credit rating or access to data,” says Rohit.
Secondly, there are trust issues. “Even though banks have stringent rules and (many times) may not use best technology, customers trust them much more than an online lending platform,” opines Rohit. The company strives to win this trust by making its lending platform safe and easy to use, while ensuring speed of transactions and a great customer experience.
Clarity in regulation for the fintech sector is still unclear. “While most fintechs are offering new technology and innovation in the lending market, regulations regarding digital platforms being able to offer peer to peer lending options and ability to bring foreign capital in Indian debt markets is still not very clear,” states he. Biz2Credit aims to overcome all these challenges with technology-based innovation in matters of online lending.
Biz2Credit raised Series A funds from Nexus Venture Partners and aims to raise further capital in 2017 to expand its India operations. While its current network is strong in metros like Delhi-NCR and parts of Mumbai, the company plans to spread its wings extensively across the country in the months to come. This apart, it aims to enter the U.K. and Australia later this year. “In next three years we aim to be the largest SME credit marketplace globally, with partnerships with the top 20 banks across the globe. We also aim to grow our SME user base by ten-fold and should also be publicly listed,” concludes Rohit.