Online Seller Finance

Online Seller Finance

For sellers, an online marketplace is a highly competitive space as each merchant is competing with thousands of others like them. If the seller is present on the all the big ecommerce platforms, like Amazon, Flipkart, Snapdeal, eBay, Shopclues and Paytm, then multiply the intensity of the competition that many times.

Why Working Capital is important for sellers

The biggest pressure point for an online seller is – Capital (lack of it). Big brands that sell online have financial backing. But small sellers can face financial crunch. On top it the inability to predict online sales and being prepared for the sheer volume, especially during online sales & festive seasons, can be very pressurizing. This is when the need for Working Capital (WC) is felt the most. Few reasons why/when WC is important are:

Business expansion

It allows the day-to-day operations of a business to run smooth

Enhanced financial liquidity

Meet sudden increase in demand by buying inventory

Create new product line for a specific period

Build brand value and goodwill

Determines the ability to pay off short-term expenses or debts

Reduces liabilities

Assistance from Marketplaces

Before ecommerce entities started offering financial assistance, personal wealth and borrowing money from friends/family were the first two options to get funds. Next option was to approach banks/lenders for loans, which is not only a lengthy process but also doesn’t guarantee that your fund request will get approved. Why?

Ankit Nagori, Flipkart’s CFO had an answer to this, about which he spoke in one his interviews, “Most of the lending organizations consider them (online sellers) as ‘un-bankable’ which results in a lot of SMEs/units closing down or borrowing from other sources at higher rates.”

As all the big players want their platform to be the one with the biggest seller base, a need for monetary assistance for small sellers was identified by all. And therefore as one can see there is a surge of such capital initiatives and other seller wooing tactics in the last one year.

Here’s a list of financial assistance programs offered by 6 online marketplaces:

Under its ‘Growth Capital Initiative’ that was launched in July 2015, the marketplace has tied up with leading banks and financial institutions like, Axis Bank, Bajaj Finserv, Capital First, Lendingkart, and NeoGrowth.

Collateral free loans from Rs. 1 lakh to Rs. 1 crore

Interest rates between 12% and 13%.

While all sellers can apply for loans, but the final call is taken by Flipkart after analysing the seller’s quality of business

For now the selection process is manual. Although, Flipkart aims to make the loan approval process automated very soon

Since setting up Capital Assist, Snapdeal’s financial initiative for sellers in August 2014, the company claims it has helped around 300 SMEs raise Rs 100 crore WC. Some of the partner banks and NBFCs are Axis Bank, Capital Float HDFC Bank, ICICI Bank, India Infoline, L&T Finance, RBL, and Religare.

Instant loan facility and quick online submission of documents

Flexible, customized financing options

Pre-approved loan for small sellers with limited documentation

Unsecured funding up to Rs. 1 crore and various financing products based on sellers’ repayment ability

Eligibility criteria differs with loan amount & type and application is reviewed by investors

Amazon Lending was launched in 2012 and gave out loans to sellers based in the United States and Japan. In June this year, the American marketplace announced their plans to launch its business loan program for small sellers in India too. Besides India, this WC loan facility is available in Canada, China, France, Germany, Italy, Spain and the United Kingdom.

Loan duration is three to six months

Loan amount between of $1,000 (INR 65,000 apprx.) to $600,000 (INR 3.9 crore apprx.)

Interest rates range from 6-14%

The loan facility is available on invite-only basis

Alibaba, which has a major stake in Paytm, has been helping many small businesses by assisting them through its financial services arm Ant Financial. Hence, Jack Ma’s company is popular as a ‘seller friendly’ platform. Needless to say, Paytm plans to do the same. The emerging marketplace has collaborated with Capital Float and Aditya Birla Finance Limited to offer loans. A seller can register for the loan through this online form and fill out details such as form of business, company turnover, loan required amount, and other details.

Loan amount between 1 lakh to 1 crore

TAT of 3-7 days for loan pay-out

Easy application process, minimal documents

Collateral free

Although eBay is losing its charm and sellers are unhappy with the treatment meted out to them, the company is still introducing new seller initiatives every now and then. In March, the marketplace tied up with SMEcorner to facilitate loans for online sellers. And in August, it started offering financial assistance to sellers through Capital Float.

Unsecured business loans from 2 lakhs to 1 crore

Interest rates range between 16%-22% p.a.

Loan duration from 6 months up to 3 years

Collateral/security free

Loan Against Property (LAP) is available too through SME Corner from 1 year -15 years with interest rates range between 12%-15%

Launched this year in June, the marketplace’s working capital assistance program is called ‘Capital Wings’. Shopclues has partnered with various NBFCs and Nationalised banks for this initiative.

Loans up-to Rs 1 crore

Collateral free

90-day credit period – can be rolled up to four times a year

Easy online application, less documentation & quick approval

Seller’s track record and sales record will be scrutinized before approving the loan amount