Debt platforms expand loan pool for consumer, e-commerce companies as festive season sales expected to surge

Alternative debt platforms such as Velocity, GetVantage and Klub expect to expand their loan pool for e-commerce companies significantly this year, allowing them to expand inventory of sellers and fulfil faster deliveries.

Velocity, a cash-flow-based financier backed by Peter Thiel’s Valar Ventures, has set up a ₹400 crore fund to support direct-to-consumer brands, up more than 60% from levels in the previous year’s festive season, the company told Mint.

Mumbai-based finance platform GetVantage expects to disburse up to ₹250 crore for e-commerce companies this year, almost 30% more than last year, founder Bhavik Vasa said.

Also Read: Retailers expect festive boost after high inflation, elections hurt sales

“While e-commerce and quick commerce marketplaces are offering a big boost to consumer brands, many of them are focusing on bulking up their direct website sales, which makes working capital management crucial," Vasa told Mint. GetVantage works with a range of companies from Flipkart and Myntra to new-age food brands like Open Secret and Snackible.

E-commerce companies expect sales to surge by 35% this festive season, according to a report by recruitment and hiring services platform TeamLease, bolstered by the rise of quick commerce and consumer spending capacity.

The festive season generally starts on Independence Day on August 15 and lasts until the New Year.

No time to waste

According to Shankar Prasad, founder of Unilever Ventures-backed skincare firm Plum, there are multiple fast-moving levers on a typical peak sale day for a consumer company - from logging in orders to packing and dispatching and time is of the essence.

“We need to get a range of things in place - right from making sure the website doesn’t glitch, stocking up to meet demand, and planning the product funnel. Working capital is essential to keep the engines running," Prasad told Mint.

Seasonal peaks during festival periods such as Diwali and Navratri typically require e-commerce companies to expand their marketing budgets, prepare inventory, and carry out speedy deliveries, which can be difficult without sufficient working capital.

Also Read: Better deals, bigger discounts: Smartphone market preps for festival revival

Moreover, the working capital requirements of retail companies jump to 1.5x revenue on a peak day, according to Prasad, making it imperative to maintain liquidity.

Alternative debt capital has emerged as a quick way to secure financing without diluting equity, making it a sought-after financing instrument for many consumer companies. 

Access to credit

Small companies, especially startups, often find it tough to secure loans from traditional banks, according to Plum’s Prasad, given the conservative approach of lenders.

“It takes a lot of time for a small brand to build a relationship with a bank as they are also particular about the balance sheet and P&L," Prasad noted.

Revenue-based financing platforms, which lend against a portion of the borrower company’s revenue, offer an easier way to secure credit.

Also Read: Festive hiring boom: E-commerce, quick commerce set to lead the way

While most consumer companies have partnerships with debt financiers for medium- to long-term working capital loans throughout the year, the festive season calls for additional short-term financing, typically for four to six months.

Eklavya Gupta, founder of underwriting platform Recur Club, which earmarked up to ₹150 crore for e-commerce companies this year, said debt products have grown in popularity among digital-first companies, with inventory invoicing and bill discounting the most in demand.

Offline boost

Boosting working capital will also benefit companies looking to expand their offline presence, according to Anurakt Jain, founder of revenue-based financing company Klub, which doubled its e-commerce fund allocation to ₹200 crore this year.

While online-focused brands use capital to expand marketing budgets and master distribution channels, offline brands look at working capital for store expansion and inventory management.

“This year, there is a seminal realisation that omnichannel is the way to go," Jain added.