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Lending Start Ups Facing Challenges Due To COVID-19

From delayed payments to delayed collections, lending StartUps are facing a chaotic situation

Photo Credit : ShutterStock


The rapid spread of COVID-19 and its fall out on various facets of economy, including on Start Ups involved in lending money to small businesses, is beginning to see severe challenges. Money-lending Start Ups like Arth Impact and MoneyTap are seeing delayed repayments, slowdown in demand for loan and challenges in collections among others. 

Experts said, the lending startups, which work on cloud or are digitally stable will be able to move smoothly even during the current crisis as opposed to those with offline base.

Manish Khera, Serial Entrepreneur and Founder of Arth Impact (Happy), a lending startup which provides loans to small and medium-sized enterprises said, “The main impact of the pandemic is the delayed repayments due to lockdown. Lending start-ups that have physicality involved i.e. in fulfillment process or physical process would be affected due to lockdown but a startup like us which is completely digital would remain unaffected." Khera added that they were ensuring smooth lending that could help the MSMEs to stock-up the essentials. 

As a result of the current crisis, experts said there would be a big shift in consumer behavior in the later part of the year, once the corona virus crisis gets over. 

MoneyTap, India's first app-based credit line whose work primarily revolves around credit, Kunal Varma, its Chief Business Officer, Co-Founder, said: “The economic impact is real, and entrepreneurs should radically cut down their burn. While Coronavirus hopefully may pass off in a few weeks or months, the sink will set in for the rest of 2020." He said the lending firms were facing issues like delayed repayments, slowing demand for loans and problems in collections.

Measures taken for COVID-19

The current crisis has led to disrupting the current working capital cycle of many small business owners. Khera said, "The right measures which are being taken right now is to modify the current offerings in a way that it enables the customers to take the loan in such a crisis as well." He said startups were launching new products for the customers that might be useful and were in line with the current market conditions.

While companies across the globe have given their employees Work From Home and enabled all the transactions online, they are sensitising their employees, partners, customers about the precautions they could take and how they can reach out to companies for any assistance. 

"Most of our workflows are automated - our cutting edge technology platform means that if employees have to work from home, their productivity, as well as service delivery standards, will not suffer," said Bhupinder Singh, Founder & CEO of Incred, a non-banking financial startup which provides loans to consumers and MSMEs.

Startups like InCred’s whose business is granular and doesn’t have exposure to any high-risk segments like real estate etc. still have to closely monitor the portfolio for early warning signals. On the other hand, MoneyTap has been changing it's marketing and growth strategies along with health awareness among its customers and field executives to suit the present scenario keeping their well-being in mind.  

Varma said, “Our operations are impacted. In light of the health advisories regarding COVID-19 pandemic, we have discontinued document pick-ups in some cities temporarily. We have also initiated ‘Zero-Touch’ processes for credit approvals. Customers can complete their credit applications through a 100 per cent online process from the safety of their homes."

A sigh of relief
The announcements made by the Finance Minister on March 24 came in as a relief to many Star Ups. While some measures announced might bring about temporary relief to small businesses, considering everyone’s cash flows are going to get impacted, delaying mandatory filings and waiving off late fees and penal interests for businesses up to Rs 5 Crore in annual turnover, is considered to be a good move by the industry. As is known by now, most compliance deadlines for 31st March have been extended by a quarter. 

“The announcements from the Finance Minister give us some early reassurances that as far as the economy is concerned, the government is willing to act fast, both on the micro and macro front,” said Varma. However, more on the economic stimulus is yet to come, but it looks like the government is willing to react quickly to an environment that is changing almost daily. Moreover, the industry is keen to see what the Finance Ministry and Regulators have in store for the BFSI and Capital markets in particular, as that will have a far-reaching impact on the economy, maybe up to 12 months out.

"On the consumer front, the move to get rid of the minimum balance requirement from the savings account and elimination of ATM withdrawal charges is a small, yet significant move. Not sure if the latter will matter much economically, but it may be a relief to some sections of the society particularly, Varma added.

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