Financial technology company Razorpay has started going deeper into the Indian financial services market. The Tiger Global and Sequoia-backed firm is starting a new lending service for small businesses, seeking various ways for accessing easy and flexible credit. It would help them maintain constant cash flow and also repay the borrowed interest with flexible timelines.
Razorpay has launched a collateral-free line of credit, ‘Cash Advance’ for businesses. With Cash Advance, the company said MSMEs (micro, small and medium enterprises) can borrow working capital with a credit limit of Rs 50,000 to Rs 10 lakh, within 10 seconds through the Razorpay dashboard, depending upon the credit history of the business. The firm aims to disburse a total credit worth Rs 100 crore by the end of this year.
The company said the pandemic has not only knocked off revenues of MSMEs’ but also disturbed their hopes of survival. It said the new initiative would improve their cash flows.
“A number of businesses now have been facing weeks, if not months, of revenue loss due to insufficient funds thereby putting unanticipated pressure on liquidity,” said Shashank Kumar, CTO and co-Founder of Razorpay. “With the Razorpay ‘Cash Advance’ a short-term credit line, we want to improve the cash-flows of our partner businesses by making the unpredictable financing process exceptionally easy, instant, and less stressful. Our solution is designed in a way that it doesn’t require businesses to have a high credit score or other unrealistic requirements to avail short-term loans,” he said.
Global analytics company CRISIL found that during these downturns, MSME’s are unable to manage working capital challenges as easily as their large and medium peers. India has more than 63 million MSMEs. About 40 per cent of MSMEs have availed loans from formal channels like banks and lending institutions while 60 per cent don’t have easy access to working capital loans. While the government continues to offer schemes that will benefit MSMEs, most of them have only been able to partially take advantage of it, primarily because the accessibility of such services is based on collateral, size, vintage and credit history of the business. Also, under government schemes, businesses are required to be qualified as an MSME, as strictly defined by the government to avail loans from banks.
Founded by IIT Roorkee alumni, Shashank Kumar and Harshil Mathur, Razorpay provides technology payment solutions to over 1 million businesses.
“We have a lot of businesses on our platform and have access to their cash flow data. We have built an AI-based underwriting engine that can help us predict the cash flow of the businesses," said Kumar. "Based on this we are able to give instant short-term credit loans to the businesses," he said.
Having spoken to MSMEs, Razorpay found that small manufacturers, e-commerce sellers and service providers needed cash for ongoing expenses even before they received payments from customers and vendors. For instance, e-commerce sellers need working capital loans to stock up at short notice in order to continue selling as per demand. Razorpay’s Cash Advance offers relief by providing collateral-free loans before sales and payments happen, which ideally takes 5-15 days for small businesses.
Cash Advance uses merchants payment history (not just credit history) to approve a credit offer within a few hours or instantly in some cases. Once approved, businesses can withdraw additional money whenever they need and repay whenever they want. Withdrawal is instant and businesses will receive the money within a few seconds. Businesses will be enabled on the ‘Cash advance’ feature with renewal every 6 months or 12 months along with easy auto-repayment options.