E-commerce in India has grown by 34% per year since the year 2009 and is expected to reach 3% of total retail sales by 2020. Online orders per million are estimated to more than double from 5 million in 2013 to almost 12 million by the end of 2016. The e-commerce industry is expected to touch $100 billion by 2020 with the astounding growth in e-retail and m-retail.
The e-commerce ecosystem broadly comprises of aggregators and comparators; brand retail and market places for smaller vendors. Travel i.e. ticketing and stay bookings takes up one of the largest shares of the e-commerce options available.
While the larger brands have backing of the offline and on-ground systems of their company and portals with slightly different business models and technology backend of their own have investors to bank on, the smaller retailers and vendors on market places get left behind. Several online vendors are unable to grow due to capital restraints. This has opened up a huge sub-segment within the e-commerce industry – Seller Financing.
Several financial institutions are offering business loans to online sellers due to the growth in this sector coupled with a slowdown in traditional lending. The finance companies use online databases before lending to online sellers. Some of the factors that are used to determine the amount and interest rates on such loans are listed here
- Number of years in business
- Size of business operations
- Percentage of returns to total sales
- Customer reviews and satisfaction
Most lenders offer such small business loans at an interest rate of between 11% and 15% per annum. The approval process is quick and generally takes two or three working days from the date of the application. The quantum of the loans is calculated on the basis of the sales over the previous six months and the standard deviation in the macro industry.
The importance of lending companies for the growth of online vendors is undeniable. Financing companies are able to leverage the huge amount of data that is available for the online vendors to underwrite these loans to reduce their risks which are higher than that on traditional loans.
Some of the largest and leading online selling sites have partnered with banks and other financial institutions to provide capital finance to online sellers. This is an excellent way to assist these vendors in expanding their businesses.