Fintech offer Loans to SMEs

Starting your business without having to dilute stake or offer collateral may have earlier seemed like a dream come true, but not anymore.

A group of fintech start-ups such as GetVantage, Velocity Capital, Klub and N+1 Capital is funding entrepreneurs and small and medium enterprises (SMEs) across the country using the revenue-based finance (RBF) model that offers loans to Start ups. As of this year, these Fintech companies have helped kick start over 300 companies. 

Using RBF model, the lender funds the start-up and charges a flat fee as interest. The borrower on the other hand timely repays the principal and interest earned by the revenues with a mutual predetermined ratio. This model is dedicated to help to smaller ventures which are unable to get access to bank funding or raise money from venture capital or private equity players. Therefore, the average quantum of loan is much lower in this model. 

This model is dedicated to help reduce the credit gap for MSME’s which is estimated to be around 15 lack crore in India as of now. It helps kick start smaller ventures which are unable to get access to bank funding or raise money from venture capital or private equity players. Therefore, the average quantum of loan is much lower in this model. These Fintech companies lend anywhere between 10 Lakhs to 2 Crores and the rate of interest on the loan varies between 4-8%. Most of these FinTech companies claim that this process from signup to disbursement takes about 7 days and are now aiming to reduce it to two days. 

Also, the ongoing COVID-19 pandemic has been a blessing in disguise for RBF players as a large number of traditional small businesses especially in non-metro locations have been looking for growth capital to establish or expand their digital presence to reach their target audience.

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