Skip the bank and get a small business loan from this Indian startup

When Harshvardhan Lunia was working in the small loan division of ICICI Bank, which is India’s second largest, he realized that small business owners were often denied financing despite being credit worthy. He also identified that SMEs and startups were frequently unorganized, with sloppy or missing paperwork a large reason that conventional banks would turn them away. So in 2010, he quit his job to build a platform that makes Indian SMEs bankable.

According to Lunia, there are 57 million enterprises, excluding large corporates, in India. “Banks have funded US$110 billion to small businesses and there is still an unmet need of US$141 billion,” he says. At first, Lunia launched an advisory business designing and arranging credit solutions for small businesses. It specialized in arranging alternative modes of financing for small businesses from institutions like the Small Industries Development Bank of India (SIDBI) and India Finance Corporation Of India (IFCI). However, he realized that there was widespread information asymmetry in the SME lending space. SMEs lacked resources to carry out financing transactions and the ones which did needed hand holding for the processes.

In early 2014, Lunia’s advisory practice evolved into LendingKart which takes a data-driven approach to arrive at a credit score and then arranges capital for small businesses. His co-founder, Mukul Sachan, is a former Indian Space Research Organisation scientist and an old school friend.

An application for money

Without any collateral, physical offices, or physical verification staff members on the ground, the digital lending platform provides short-term working capital loans of US$950 to US$78,700 based on an online form filled by the borrower and disburses the loan amount through affiliated lenders, or lending partners.

LendingKart sanctions loans on the basis of a single online application. Its algorithms use 1,500 raw data points to generate a lending decision in a few hours, with disbursement just three days after approval.

“LendingKart has enough data to determine a customer’s intent to pay back a loan, the quality of his product or service, the financial health of his business, and its ability to survive with competition. We scrape this data from public or private sources and APIs,” explains Lunia.

The startup also provides loans to sellers on ecommerce sites like Flipkart, Amazon, and Snapdeal. The platform assesses the creditworthiness of sellers on marketplaces based on a financial health score, a marketplace score, a social reliability score, and a statutory compliance score. These variables are gathered from vendors’ online footprint, like their social media websites, ecommerce platforms of marketplaces, regulatory websites like Registrars of Companies, central bank, and bank statements, and Credit Information Bureau Limited (CIBIL) reports.

“Dearth of data to run analytics was a major issue while developing a means to arrive at our credit score,” says Lunia. “We turned to online footprints and unconventional data points to evaluate the creditworthiness of our potential clients. Machine learning analytical methods need millions of data points. However, through our in-house analytics lab, we have been able to identify the best method to build our artificially intelligent machine learning decision engine,” he adds.

Beating locals with proven models

Although LendingKart competes with Capital Float, Neo Growth, and SMECorner in India, it claims that the paper-free and speedy process is unique to them. LendingKart monetizes by taking a share of the revenues of lending partners.

“In the short-medium term our model will be kind of OnDeck Capital we will be lending on our own Non-Bank Financial Companies’ books and affiliates, leveraging and building our decision engine and processes,” says Lunia. “But in the long run it will be like LendingClub where we will be a platform for others to use and lend. We will earn interest/commission on lending, but not have advance on our books,” he adds.

Earlier this month, LendingKart received US$10 million in series A funding from Saama Capital and Mayfield Fund. The one-year-old startup assesses SME’s in 50 cities but aims to cover all 700 towns and cities in India with the fresh funding.