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About E-commerce Loans in India
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.
Features of E-commerce Loans
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 –
- Type of unsecured loan, no collateral requirement
- Loan value extended could range between Rs. 1 Lakh – Rs. 1 Crore
- Loan tenure can range between 90 – 270 days
- Interest payment 1.5% onwards
- Flexible repayment mode – monthly, bi-monthly repayment schedule available
- Loan sanction is capped at ‘x’ times of sales revenue per month
Benefits of E-commerce Loans
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.Lenders of E-commerce Loans
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.
How to select the right e-commerce loan?
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.Eligibility criteria for availing E-commerce Loans from financial institutions
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 –
- The e-seller should have registered the business and should have been in operation for atleast 6 months
- Business should have an established presence in atleast one of the popular e-commerce platforms – Amazon, Flipkart, Snapdeal, Shopclues, Alibaba, Paytm etc.,
- A stipulated volume and revenue per month should be achieved, this would vary from one lender to another
- A decent credit score which will enable the borrower to negotiate favorable terms for the ecommerce loan
Who can borrow e-commerce loan?
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.
FAQs of E-commerce Loans in India
1. What is an E-Commerce loan?
E-Commerce loans are tailor-made products provided to sellers in online market platforms like Amazon, Flipkart, Snapdeal, etc. These loans are intended to encourage the growth of the online marketplace by meeting the working capital requirements of online sellers. These are unsecured personal or business loans.
2. What are all the benefits of E-Commerce loans?
- Flexible repayment period provided.
- Small loans catering to the immediate working capital requirements.
- There is easy access to funds. Banks disburse e-commerce loans quickly and hassle-free.
- The documentation is minimal as an e-commerce loan is an unsecured loan.
3. Which are all the financial institutions providing E-Commerce loans?
SBI is providing a dedicated product for online sellers. It is called The SBI e-Smart SME E-Commerce Loan. The target group is Micro Small and Medium Enterprises (MSME) selling over the internet. This loan is provided as a partnership with Snapdeal.Canara Bank, Punjab National Bank, Syndicate Bank, and Bank of Baroda also provide e-commerce loans but not all of them are unsecured. It depends on case to case basis.
4. What is the eligibility for getting an E-Commerce loan?
- The business should be in existence at least for 6 months.
- The monthly revenue/income must be stable and represent a growth pattern.
- The business must be registered and selling on any of the reputed e-commerce platforms like Amazon, Flipkart, Snapdeal, Shopclues, Paytm, etc.
5. What are the interest rates offered for an E-Commerce loan?
The interest rate starts from 8.5%. There are incentives for businesses registered under the MUDRA loan scheme extended for Micro Small and Medium Enterprises (MSME).
6. How is an E-Commerce loan different from other business loans?
Generally, business loans are secured and have a higher rate of interest. E-Commerce loans are unsecured and collateral free. The interest rate charged is also low and there are concessions in processing charges as well.
7. What are all the other funding options for E-Commerce businesses?
Venture capitalists are interested in funding the happening e-commerce market. They foresee tremendous growth potential. However, venture capital funding is a bit more complex than funding by banks and non-banking financial institutions. The beneficiary undergoes serious due diligence to assess the viability of the online selling. The funding is provided as dilution in equity.
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