BEING A BUDDY TO BUDDING VENTURES

Operations are not always as seamless as they appear to be for businesses, be it an independent outlet or a business franchisee. Especially, smaller ventures have to face stiff competition from overpowering big businesses in their vicinity, attract and retain customers with limited marketing avenues, and ensure that they meet the end-to-end requirements of their customers while also keeping day-to-day expenses to a bare minimum and managing the cash flow. These facts make it apparent why about 82% of small businesses fail due to cash flow-related problems, as revealed by a prominent study.

Ramesh Singhal, a franchise owner of a leading lifestyle brand in Sector 33, Noida, was in a somewhat similar situation and almost on the verge of shutting shop. Despite leveraging a franchise model, a substantial part of the revenue generated was diverted towards monthly rents, utilities, supply chain management, in addition to the royalty fee paid to the franchise. Add to this the staff costs, maintenance expenses, and local advertisement initiatives and Ramesh was left with little bandwidth to sustain any financial fluctuation. This was precisely when the month-long sale at a nearby megastore made for some more bad news. The financial shock became too hard to withstand, and ripples followed month after the other, finally making him file his papers to withdraw from the franchise.

The Curious Case of Working Capital

Working capital is the total liquid capital available to a business that is used for day-to-day processes. It becomes critically important for small businesses since they have to manage a range of operations along with inventory to ensure constant availability of products and services. It, moreover, comes in quite handy in availing an emerging market opportunity and also becomes pivotal for business expansion. Businesses often have to also withstand the consequences of delayed payments from the forward supply chain along with unexpected business expenditures, the impact of which is mitigated with adequate working capital. In the absence of proper forecasting of working capital requirements and of generating enough cash, businesses tend to tumble.

This is an area which is being worked upon by a few innovation-driven debt facilitators working in collaboration with franchisees. They align strategically with the franchises and make credit accessible to their business partners at the time of their need. In the franchising business, the franchisee’s conviction in the brand and personal equity in the business become the prime drivers to success. Debt capital, then, inherently becomes an important element for the growth of franchising businesses, something that these platforms aim to provide.

Ramesh Singhal, in a response to his withdrawal from the franchisee line, got acquainted with such a debt-financing avenue. Indifi, a tech-driven, online lending platform that connects small businesses with banks and NBFCs, was running a franchisee financing program with his partner brand. Ramesh gave the business a last shot by deriving benefits that the platform specifically extended to his franchisee line, and acquired debt capital at the lowest possible interest rate. This enabled him to manage the on-going financial shockwave in less than three months. Quite astoundingly, the same credit line helped him to further extend his business during the coming months and launch another retail outlet nearby.

A Holistic Approach

Such platforms extend credit to both new franchise store setups as well as existing franchise stores and take multiple parameters into account in the due process. These parameters include the strength of the brand of the franchise as well as the strength of the individual outlet while facilitating the loan. Also reviewed are the past transactions, both internal and external, to assess whether the credit criteria meet requirements of the lenders.

This enables these platforms to quickly match the loan applicant with the loan facilitator while protecting the interests of both the stakeholders. It helps a loan applicant to get the desired debt with the most flexible terms as well as enables lenders to make better credit decisions and minimise their credit risks while leveraging both the conventional and non-conventional analysis.

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