Alternative debt platforms like Velocity, GetVantage and Klub expect to significantly expand their pool of loans for e-commerce businesses this year, allowing them to expand seller inventory and fulfill faster deliveries.
Velocity, a cash flow-based financial entity backed by Peter Thiel’s Valar Ventures, has created a ₹A Rs 400 crore fund will support brands selling directly to consumers, an increase of more than 60% from the previous year’s festive season levels, the company said. Mint.
Mumbai-based financial platform GetVantage expects to disburse up to ₹250 crore for e-commerce companies this year, up nearly 30% from last year, said founder Bhavik Vasa.
“While e-commerce and fast-trade marketplaces are offering a huge boost to consumer brands, many of them are focusing on increasing their direct sales on their website, making working capital management crucial,” Vasa said. MintGetVantage works with a variety of companies, from Flipkart and Myntra to new-generation food brands like Open Secret and Snackible.
E-commerce companies expect sales to increase by 35% during this holiday season, according to a report by recruiting and hiring services platform TeamLease, driven by the rise of fast commerce and consumer spending power.
The festive season typically begins on Independence Day, August 15, and lasts until New Year’s.
There is no time to lose
According to Shankar Prasad, founder of Plum, a skincare company backed by Unilever Ventures, on a typical peak sales day for a consumer company there are multiple levers moving quickly — from order entry to packaging and shipping — and time is of the essence.
“We need to put a number of things in place, from ensuring the website is trouble-free, stocking up to meet demand and planning the sales funnel for the product. Working capital is essential to keep the engines running,” Prasad said. Mint.
Seasonal spikes during festival periods like Diwali and Navratri typically require e-commerce businesses to expand their marketing budgets, prepare inventory, and make quick deliveries, which can be difficult without sufficient working capital.
Moreover, working capital requirements of retail companies rise to 1.5 times revenue on a peak day, according to Prasad, making it imperative to maintain liquidity.
Alternative debt capital has emerged as a quick way to obtain financing without diluting equity, making it a highly sought-after financing instrument for many consumer companies.
Access to credit
According to Plum’s Prasad, small businesses, especially new ones, often find it difficult to get loans from traditional banks, given the conservative approach of lenders.
“It takes a long time for a small brand to build a relationship with a bank as they are also very particular about the balance sheet and P&L,” Prasad said.
Revenue-based financing platforms, which provide loans against a portion of the borrowing company’s revenue, offer an easier way to obtain credit.
While most consumer companies have partnerships with debt financiers for medium- to long-term working capital loans throughout the year, the festive season calls for additional short-term financing, typically four to six months.
Eklavya Gupta, founder of the subscription platform Recur Club, which allocated up to ₹150 crore for e-commerce companies this year, said debt products have grown in popularity among digital businesses, with inventory invoicing and invoice discounting being the most in demand.
Offline Boost
Increasing working capital will also benefit businesses looking to expand their offline presence, according to Anurakt Jain, founder of revenue-based financing firm Klub, which doubled its e-commerce funding allocation to ₹200 crore this year.
While online-focused brands use capital to expand marketing budgets and master distribution channels, offline brands seek working capital for store expansion and inventory management.
“This year, there has been a fundamental realization that omnichannel is the way forward,” Jain added.
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