soft banq v4.0
TRANSCRIPT
Quick, easy working capital loans for SMEs
1
The $200 Billion ProblemSMEs do not have access to Credit
92.77%
5.18% 2.05%
SME Financing in India
Self Financed/No Finance
Institutional
Non-Institutional
Causes of SME lack of
Credit Access
Lack of access to formal sources
Poor cash flow due to higher cost of credit
Higher risk profile
Lack of hard asset collateral
Lack of creditworthiness for banks
There exists a $200 Billion funding gap for enterprises that the banks and NBFCs do not lend to
Reserve Bank of India’s stance on the Problem
“India has 30 million
enterprises – only 7% have access
to financing – 93% are either self financed or not financed”
Formed committee on Comprehensive Financial Services
for small businesses and low income
households in 2011
“90% of businesses have no links with formal financial institutions.
Exists robust demand for financial services this
demand currently being served by informal
sources.”
What SoftBanQ
Does
Fast, flexible & transparent credit products to SMEs in India
Initial focus on working capital loans
Lends to the missing middle
Charges 16-18% interest + 0.5% closing fees
Receivables backed loans only to those enterprises with $40,000/year minimum turnover & at least 1 MNC or listed client
Focus
Rural Urban/Semi-Urban
Esti
mate
d h
ou
seh
old
an
nu
al in
com
e
(IN
R’0
00
’s)
0
100
200
300
400
500
600
700
800 BANKS
NON BANKING FINANCIAL COMPANIES
THE MIDDLE MISSING
MICRO FINANCE INSTITUTIONS – MFI’s120
SUPPLY OF FUNDS : THE MISSING MIDDLE WITH PERIPHERAL PLAYERS
600
What is SoftBanQ
Various SME Credit Products
Loan against Invoice
Unsecured Business Loan
Mortgage Loan
Hypothecation Loan
• 1-12 month term/16-18% annualized interest
• Should have positive monthly cash flows
• Set criteria, no discretion required
• 1-5 year loan terms
• Secured by mortgage
• Requires ascertaining value of property
• Discretion on part of loan disbursement team required
• 6 months – 2 years term
• Secured by working assets of the business
• Requires ascertaining value of assets
• Discretion on part of loan disbursement team required
• 30-180 days term
• 16-18% annualized interest
• For companies with established customers
• Set criteria, no discretion required
Why Receivables Backed Financing
• Short term loans, therefore keeps cash churning for SoftBanQ – helping liquidity
• Set lending criteria, no discretion required on part of disbursement team
• No asset valuation required
• Less exposure per transaction – hedging risk for SoftBanQ capital partners
How it Works
CUSTOMER
1. Purchase Order
2. Delivery + Invoice
3. Payment only after 30-180 days
SME SoftBanQ
SoftBanQ Advance up to 80% of invoice value
Repayment after customer pays
SME PROFILE TERMS FOR SOFTBANQ CREDIT PRODUCTS
• Established corporate customers (MNC’s, E-commerce sites, listed companies)
• Long payment terms with above customers (30 days or more)
• Manufacturing, B2B, E-commerce, Distribution businesses
• $5,000 – $50,000 in loan amount (never exceeding 80% of invoice value)
• One time bullet repayment + EMIs
• 1-12 months loan term
Borrower Profiles / Diligence Criteria / Loan Sizes
Borrower Profile
• Fast growing India based SMEs with at least one reputed client (MNCs, large E-commerce players or publicly listed Indian corporates)
• 1+ year in business
• More than INR 25 lacs ($40,000) in annual turnover
• Initially, businesses based in Delhi, Bangalore, Mumbai, Chennai and Pune only
• Company & promoter profile
• Company Financials via Tally
• Bank statements & Income Tax Returns
• Invoice/purchase order information
• $5,000 – 50,000
Diligence Documents
Loan Sizes
Disbursement cycle of 7 days/1-12 month loan term/flexible repayment schedules
SoftBanQ vs Alternate FinancingBenefit to SMEs
SB vs Banks/NBFC’s SB vs Factoring SB vs Money Lenders
SB vs Credit Cards
• No property/machinery required as collateral
• Will lend to businesses under 3-5 years old
• Quick, paperless online application process
• Funds transfer within 7 days
• No pre closure penalties
• Flexible repayment options
• Interest rates at par with effective rates charged
• Available to all business sizes, not just large suppliers
• Ability to selectively finance invoices only as and when funds are required
• Quick empanelment
• 4 weeks typically taken by factoring companies
• No hard collateral requirement
• Significantly lower interest rates (16% vs 40-60%)
• Get funds equally fast
• Free of risks typically associated with informal sector finance
• Less burdensome repayment schedules
• Significantly lower interest rates (credit cards ~40%)
• Dependable source of credit for regular business needs
• Loan sizes set according to business needs, not card limits
Lower interest. Flexible repayment terms. No hard collateral.
Target Market & Acquisition
SoftBanQ
Vendors on E-commerce sites
Tie-ups with Industry Trade Bodies
Tie-ups with lending desks at banks
Business development team
Execution Strategy
0
10
20
30
40
50
60
Indian E-commerce Market Size (in $Bil-lions)
2009 2011 2013 2023
Indian E-commerce growing at 30% CAGR vs 8-10% globally
SMEs sell on these sites
Sites are adding 200,000 SMEs an annum to their marketplaces
SMEs have unmet capital demand, even by existing players such as Capital Float, Wonka, etc.
Sites support startups like SoftBanQ – good ecosystem
E-commerce Companies
Market Size, Revenue Potential & Exit
0.16 1.6 16 1600
50010001500
REVENUE POTENTIAL
Revenues(in $millions)
Pri
nci
pa
l A
mo
un
t
(in
$m
illio
ns)
Market Size
• 30 Million+ SMEs & Micro Enterprises in India
• $200 Billion credit funding gap where banks / NBFCs don’t lend – IFC/McKinsey Report
• India – 3rd largest economy growing at 7.5%
• Online lending at the cusp of booming in India
• Acquisition by bank / NBFC
• Acquisition by Kabbage / Capital Float
• IPO
• Principal amount is for 12 months at 16.5% annualized
• Loan repayment default rate is 1%
• Exclusive of fixed costs
• Exclusive of closing fees of 0.5 – 3%
Exit Revenue Assumptions
Capital Structure
Guarantees repayment
default
Equity Investors in SoftBanQ
HNI Lenders to SoftBanQ
Lends to SoftBanQ at lower interest
rates
Increases capital base
to lend
Receives principal and interest
through Escrow
Uses the interest rate carry/maturity transformation principle of commercial banking
~60% of equity capital is an asset/not a cost
Hedging Risk
~30% of equity capital is liquid
Short duration of capital churn
Used for fixed costs
of the business
Used as principal lending amount
Used to guarantee any
repayment defaults to HNI Capital Base
Hedging of Risk
Industry Ecosystem
In descending order of amounts of funds
managed
Regulatory Requirements for SoftBanQ
Reserve Bank of
India
INR 2,00,00,000 (2 crores)
Regulatory body for Non Banking Financial Companies (NBFCs)
Net Owned Funds (NOF) required to register a Loan Company NBFC
For NBFCs with under $80M in funds, regulatory and registration requirements are simpler
RBI FAQs about NBFC Registration - http://rbi.org.in/scripts/FAQView.aspx?Id=71
HELPFUL LINKS TO EVALUATE REGULATORY REQUIREMENTS
Latest RBI Notifications to NBFCs -http://www.rbi.org.in/scripts/BS_ViewNBFCNotification.aspx
NBFC Application Forms
http://www.rbi.org.in/scripts/BS_ViewForms.aspx?FCId=9
Founding Team
• Successful Fintech startup entrepreneur
• Ex corporate lawyer with 7 years in finance & investment banking, advising on capital raises
• Founded & led to success, www.BankerBay.com – a leading deal origination platform used by top investment banks and private equity firms – Headquartered in the US, teams in New York, San Francisco, Singapore & Bangalore
• Experience in bootstrapping, product development, enterprise customer acquisition, raising capital, scaling & building & leading a 25 member team
• Experience in working with investors and serving on a BoardAsh Narain / Founder
MENA Based Founding Investor
• CEO of a $1.4 Billion Family Office in the Mid East
• Investing in SoftBanQ with a group of angels
• MBA - Colombia Business School, MIT
Head / Credit & Credit Products
• Professional with 5+ years in underwriting credit for SMEs in India
• Past experience working for a Loan Company NBFC in India
Head – Business Development
• Establishing relationships between SoftBanQ & E-commerce firms
• Establishing relationships between SoftBanQ & banks
• Creating SME funnel
