Embifi Global Services Pvt Ltd

Micro, Small and Medium Enterprises (MSMEs) have specifically suffered throughout the pandemic. A survey by SIDBI revealed that the revenue of more than 50% of the MSMEs declined by 25% and that 67% of the MSMEs were shut for three months in FY21. This sector is a facet for entrepreneurship and employment which is why this decline in their progress negatively impacts the upward trend of India’s economy. 

Less than 6-10 Million out of over 60 Million MSMEs are able to get loans from formal credit institutions. Traditional banks prefer giving formal credits loans to those requiring a larger sum, for longer periods and those who have the ability to fulfil all requirements for the same, thus, MSMEs are at the end of the list when it comes to getting access to formal credit. Much like most businesses, MSMEs require loans for their daily working capital needs but they constantly face issues securing the same i.e., failure to satisfy the eligibility criteria required by the formal banks, not having adequate technological knowledge, non- existent or inadequate credit scores etc. They often cannot produce a collateral against their loans and usually do not have the proper documentation like the bank statements of previous months, residence proof, property documents etc. This is where cashless B2B digital lending facilitating platforms like Embifi could prove to be beneficial. Considering how most of these businesses are small scale businesses run by family members, speaking only local languages and unaware of the formalities and cumbersome processes, the B2B lending platforms would help with guiding them and providing the technological know- how and assisting in understanding and adapting to the credit analysis methodologies along with other formalities of the lending process.  

Given the unrestrained expansion of digital lending (mainly in the retail space) with some players flouting the lending norms, The Reserve Bank of India in its recent guidelines on digital lending laid down the requirements to ensure that the consumers’ interests are protected. It is to be noted that the B2B lending platforms strive to make the lending process easier and provide a faster way to loans and it will be much smoother as they would promptly adhere to the RBI guidelines. They understand the situation and circumstances of the MSMEs and help secure their financial needs which would in turn help grow their businesses. 

The MSME industry is looking forward to take advantage of the readily available services of the B2B loan facilitating platforms like Embifi and accomplish their working capital requirements to maintain liquidity. Digital lending provides for a way to keep the business running but they would also help the business to grow and help them navigate the constantly changing and dynamic economic environment.  

The taboo of taking out loans and constantly worrying about recurring repayments is a common mindset amongst small scale ambitious entrepreneurs however, the positive changes in the lending environment and adapting to the businesses’ ever- changing credit needs is pushing the business owners in the MSME industry to consider and make use of digital lending. 

The rapid digitalisation of businesses in the wake of the Covid-19 pandemic compelled people across the globe to turn to cashless transactions- a trend further confirmed by the fact that the FinTech industry peaked at a whopping $91.5 billion in the year 2021.

The FinTech sector has also been quick in adapting to meet the evolving investor and customer needs. Many such companies are now working on the effect of blockchain technology on generating revenue, and competing to deliver process efficiency, enhance end user experience and reduce business risks.

The market is steadily filling with B2B payment platforms, and each one has a unique penchant for technologically revolutionary solutions in B2B finance and much more. But what advantage can businesses have from availing the services of such FinTech payments providers? Read on to discover the top 5 benefits of FinTech-driven payments to businesses of all scales and sectors.

1. Funding becomes Easier

The process of obtaining a bank loan can be long and tedious as it involves a thorough assessment of the applicant’s credit history. In fact, this criterion is the most common reason why middle-class people fail to get business loans for a startup, as they lack sufficient security to provide against the same. FinTech, with their range of NBFCs and B2B payment platforms, are credited for meeting the B2B finance needs of such ventures without much hassle.

2. Increased Scope of Business Activity

FinTech companies create systems for businesses to accept payment for trades and services with greater convenience. Associating with a FinTech initiative is particularly beneficial for SMEs as they have access to the former’s vast array of financial resources, distribution channels, investments and payments platforms. Say you need an electronic payment platform for your small business, a FinTech company can help you with their expertise on it.

FinTechs also operate multilingual services on their B2B payment platforms, providing a scope for global transactions without any language barriers. It is for this reason that businesses relying on agent networks are starting to resort to FinTech to make transaction processes more seamless for themselves and their clients alike.

3. Increased Speed and Security in Transactions

Well, this one’s a given. Advancements in FinTech have drastically improved and increased payment options for businesses in a variety of industries. Most B2B payment platforms can connect directly with a business owner’s bank account, making real-time instant payments possible with the help of an open banking API. On the security front, most FinTech services are equipped to provide protective measures like biometrics and two-factor authentication to ensure safe transactions.

4. Reduced Costs

FinTech-driven payments can save businesses from additional expenses like modification fees, cancellation fees and other hidden charges. They also enable businesses to make transactions across multiple currencies without the compulsion of conversion fees. FinTech further provides the scope for consolidating multiple bank accounts and cards using a single interface, thus reducing overall costs for businesses by simplifying their transaction methods.

5. Increased Transparency

FinTech solutions have also paved the way for more transparency in B2B finance. FinTech platforms are often kept in a tight loop regarding their individual transactions, there is usually the facility of 24*7 customer support as well as real-time updates on all big and small transactions. FinTech-driven payments have thus promoted trust and reliability in business.

In addition to fuelling the global growth of entrepreneurship, the Covid-19 pandemic is hailed as a boon for the Indian startup economy Indian startups raised approximately $42 billion in 2021 and 42 new companies joined the unicorn league. The number of B2B (business to business) marketplaces has increased, and this increase in the number of businesses in the market now demands simultaneous growth in the B2B financing sector as both new and old SMEs continue to struggle for sustenance

What is B2B financing?

As the name suggests, B2B financing refers to the different financing options available to businesses that deal with other businesses, including bank loans as well as a range of other alternative lending options. The stringent prerequisites of traditional bank loans were anyway difficult to meet and in the time of Covid they almost became impossible and businesses started turning to other financing alternatives. The advancements in FinTech provide a wide range of non-bank B2B financing options to choose from.

What are the benefits of B2B financing from non-bank lenders?

Business loan applications to traditional banks require a lot of supporting paperwork and tedious processes to comply with, which becomes particularly challenging for small-scale or home businesses. A B2B financing service by Fintechs provides simplified checkouts and payments without the hassle of abiding by stringent bank rules- their application and lending processes being easier and the capital more accessible.

Alternate lenders are also credited for approving more financial transactions at a faster rate than traditional banks. Reports of the year 2019 show that the approval rate for bank loans was around 26% while the same for non-bank lenders was 56.6%. American financial consultant Marilyn Holt advocates alternate B2B financing services, arguing that non-bank lenders often specialize in certain types of loans suited for particular industries and therefore their services are value-added.

Additional benefits of availing non-bank B2B financing services are that they provide a lot of flexibility in their lending policies. The interest rate and credit period can be decided upon based on the capacity and needs of the business opting for such services. Non-bank lenders are also known to use the latest innovations in Artificial Intelligence in FinTech to provide more technologically advanced services than traditional banks.

What are some of the popular types of B2B financing?

1. Direct B2B lending: These are loans taken from non-bank lenders and were the biggest source of b2b lending in 2021. Direct loans are particularly helpful for SMEs which often fail the stringent qualification criteria for bank loans.

2. Venture Debt: These alternative lenders take a part of the company’s ownership in exchange for capital- the percentage of ownership to capital being negotiable. This is helpful for businesses that do not have enough collateral to get a bank loan. The benefits of venture debt are more than financial as they help establish industry connections for their clients.

3. Invoice financing or factoring: Here, the alternative lender provides you with an amount that is equivalent to a percentage of your unpaid invoices. In this arrangement, the lender uses the invoices as collateral for cash flow.

Takeaway

Businesses need not rely solely on banks for B2B lending/ B2B financing as the market now has alternatives available in the form of B2B lending companies. The SMEs will benefit hugely as the latter’s policies are specially designed to meet the needs of B2B marketplaces and companies.