Loanzen goes where banks fear to tread, helps startups with short-term loans

Photo credit: Pixabay

One of the pain points for startups in India is lack of access to credit. The usual collateral and other requirements of banks are beyond their means. Banks are also more attuned to financing traditional businesses, not the asset-light, fast-growing internet businesses of today.

Peer-to-peer lending sites have been coming up to fill this gap. One of these is Bangalore-based Loanzen which was founded in September and formally launched last month. Today it announced an undisclosed amount of seed funding from Tracxn Labs as well as angel investors via TracxnSyndicate.

Loanzen provides short-term loans for up to 120 days to businesses which are less than three years old to meet their cash flow gaps. These are unsecured loans from private companies or non-banking financial companies. The borrower and lender enter a tripartite escrow agreement with Loanzen which operates as a marketplace.

“Currently many small businesses get turned down by banks but are in dire need of short-term credit to fuel growth. Our mission is to enable small, new age businesses to succeed, and we see credit as a key element that today prevents them from reaching their goals. We are building the tech and data infrastructure that will be required for the larger lending ecosystem to be able to address this market,” says Madhu Sudhan, co-founder and CEO of Loanzen. Madhu is an IIM Bangalore MBA who worked as a finance professional with KPMG, Lazard, and Capital18 before turning to entrepreneurship.

Credit scoring model based on data

Photo credit: Simon Cunningham

Loanzen uses technology for quickly assigning credit scores to applicants based on their credit history, accounts, cash flows, and credentials. This enables lenders to find suitable borrowers without delay. The loan rates vary from 0.8 to 2 percent monthly, depending on the credit score of eligible borrowers. Loanzen takes a listing fee of 1 percent of the loan.

Loanzen co-founder Venkatesh S says: “With businesses increasingly moving online and the rapid growth driven by internet marketplace transactions, we believe that the traditional banking model of one-size-fits-all financial product delivery is poised for change. We are focused on transforming and simplifying the operational process of getting a small business loan. Over time, we will continuously drive down the pricing for good borrowers.”

Banks not interested in short-term loans

Photo credit: Nevil Zaveri

According to a World Bank study with Reserve Bank of India data, the market size for unsecured short-term loans is US$120 billion in India, which has over 26 million small businesses.

But for banks, it’s more economical to process larger loans, not the sort of loans small businesses need. “Loanzen is addressing an important gap in the lending ecosystem as it empowers small and medium businesses to access hassle-free short-term credit,” points out Neha Singh, co-founder of Tracxn.

Software firms, manufacturing companies, and sellers on ecommerce portals are examples of the kind of borrowers Loanzen is targeting. It currently operates in Bangalore but plans to expand to Mumbai and Chennai by April.