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Electronic commerce, popularly known as e-commerce, is a business model which enables any commercial entity to conduct business on electronic platform namely, the internet. The internet space is highly competitive, the dynamics of e-seller is different as compared to the conventional or traditional seller. There is a need for the e-seller to consistently replenish inventory, effectively manage logistics and supply chain management. There is a need for quick and flexible working capital loans. Most banks cater to this need by extending E-commerce loans. These loans are unsecure in nature and fall within the personal loan category. They are either offered as personal loan or business loan to the businessmen. Top banks have a separate wing to evaluate and extend e-commerce loans to individuals, firms and companies. These loans cover be small, medium and big companies. The loans have helped e-commerce companies to add value to the services they provide.
About E-commerce Loans in India
These loans are extended to e-sellers in India. Many banks have a separate type of loan ear-marked for e-sellers. The key features of e-commerce loans are –
Among the many benefits that one can cite, these business loans involve lower documentation and are extended with minimal processing. Thus, the loans can be availed in a quick manner. The aspect of documentation is critical especially for any business man, since establishment of stability of income becomes a challenge. There is also the benefit of flexible repayment, fortnightly repayment facility is also available. These loans are typically used for working capital and inventory management. These loans cater to established players and to start-ups as well. The loans are also extended for shorter period, thereby making this convenient rolling credit arrangement.
While most banks extend these types of loans under their personal loan product suite the behemoths like SBI have a separate product called the e-Smart SME E-commerce Loan. The loan is specifically structured to benefits the Small and Medium Enterprises (SME). This product was launched in collaboration with Snapdeal, one of India’s largest retail e-commerce dealer. Following the launch of e-commerce loans by SBI, there are other banks such as Canara Bank, Syndicate Bank, Bank of Baroda and Punjab National Bank which have launched their own e-commerce loans with terms especially conducive to e-selling enterprises of small and medium size. However, not all these banks extend e-commerce loans without collaterals. When there is a without collaterals. The interest rate could vary from one lender to another.
Several NBFCs (Non-Banking financial corporations) are also engaged in extending e-commerce loans to e-sellers who trade their goods or services on popular online portals such as Amazon, Snapdeal, Flipkart, Shopclues etc. Some of the NBFCs that offer e-commerce loans under their product line are Tata Capital, Reliance Capital Limited, Bajaj Finserv, DHFL, Indiabulls, Fullerton, Cholamandalam Finance etc. There are other institutions which specialize in extending e-commerce loans such as Capital Float, BankFin, Gromor Finance etc.
Apart from banks, there are many financial institutions and venture capitalists who prefer to fund the e-commerce segment. They see tremendous value and growth in this space. Venture capitalists are on the look-out for e-commerce companies which have not matured in the market. They look at funding opportunities which are in nascent stages. By providing them funding at this stage, venture capitalists help them increase the depth of their operations. The investment in such businesses has become apparent, there are known venture capitalists whose name being associated with any e-commerce company could potentially increase the brand value of the company. This could potentially result in increased revenue. The ideology of investing in e-commerce companies at nascent stages is to enable them to increase their market share substantially and gain profits. Several banks have also invested their funds in e-commerce companies in the hope for higher returns on such investment. These investments reflect in the Balance Sheet of the bank on the assets side.
For an e-seller to achieve success, the right e-commerce loan must be chosen. There are many e-sellers who need to have been unable to scale-up their businesses due to lack of necessary funds and appropriate vision. These are some key considerations while choosing the right e-commerce loan.
Calculate all costs associated with sale on internet platforms
Selling a product online needs proper market research to assess the competitors pricing of similar products. While pricing the own products, one must keep in mind all the costs involved in moving to the online platform. There are registration costs which is a one-time cost and recurring monthly fee payable. There may be ancillary charges such as transaction charges, bandwidth, server storage, apps and plug-ins etc., All these costs must be considered, and an assessment must be made to ascertain the loan that needs to be borrowed.
Low interest rate and flexible repayment schedule
Like all other loans, e-commerce loans also have the interest rate. This is one key component that needs to be considered. A comparison must be made across various lenders and the one with the most conducive terms should be chosen. Typically, these loans are taken for short term.
Fast and easy disbursement of loan
These loans are designed with minimal processing requirement. They require minimum documentation and are processed with low charges compared to other loans. Typically, the loan value would be ‘x’ times the monthly revenue of the business. There is a need to establish stability of income while borrowing funds, especially if the loan is extended as an unsecured loan (without collateral). In other cases, the inventory is provided as collateral against the e-commerce loan.
Underlying pledge for e-commerce loans
If the loan is extended as an unsecured loan by a bank or NBFC, or any other financial institutions, the borrower is required to pay it back along with interest rate. In other cases, when the funding comes from venture capitalists, there may be equity dilution. The borrower must forego a part of ownership in the business.
Earlier, the norms for availing e-commerce loans from banks / NBFCs or any other financial institutions were stringent. It has been relaxed considerably now. The loans are now extended to start-ups which have not filed their first income tax return (ITR). The growing trend of venture capitalists funding such start-ups has awakened the need for banks to lend to ensure that they do not lose out this fast-growing market. The key eligibility criteria for availing loan are –
E-commerce loan is available for individuals who run e-selling business, partnership firms who have a presence on online platform, companies who sell online. They should be registered on atleast one of the popular e-commerce platforms.
E-commerce loans are available from various financial institutions, an aspirant should compare the key features before borrowing. The interest rate could range between 11% - 16.5% p.a. If the borrower has a good credit score, favorable terms can be negotiated.
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