How does Lending work?
In the dynamic world of business, access to timely and flexible capital plays a critical role in determining the success of businesses, especially small and medium-sized enterprises (SMEs).
For the lender, the process of lending starts with an underwriting process. Under this process, the lender assesses the borrower’s capability and intention of repaying the loan. Conventional lending methods are heavily reliant on tangible assets such as property, gold or any other fixed asset as collateral.
These have often posed challenges for businesses, especially SMEs who may have good business models, customers & service history but do not have any tangible assets to offer. This is where cash flow based lending comes in as a breakthrough approach.
In recent times, cash flow based loans have emerged as a game-changer, providing businesses with flexible and efficient means of acquiring capital without heavy reliance on physical collateral.
In this piece, we will explore how cash flow based lending works & UGRO Capital’s revolutionary model for cash flow based lending.
What is Cash Flow Based Lending?
Unlike traditional collateral-backed lending, cash flow lending focuses on assessing businesses’ financials such as bank statements or GST returns as the primary basis for assessing creditworthiness.
This method emphasises a borrower’s lending cash flow, cash generation capabilities, and financial stability. However, it becomes difficult for the cash flow lender to scale this business, as it often relies on a touch-and-feel assessment of the customer.
How is UGRO doing Cash Flow Based Lending differently?
We at UGRO Capital have revolutionised cash flow based lending to make it scalable.
We developed a templatized and scientific approach to cash flow based loans that uses machine learning and statistical analysis. It views every small business through the lens of the ecosystem in which it operates, and groups it in homogenous clusters.
Statistical modelling is then applied to the cluster, which leads to more predictable and accurate results.
Hence, the businesses are divided into different sectors, and 9 of them have been chosen by us for cash flow loans. They are as follows:
- Hospitality Engineering
- Light Engineering
- Auto Components
- Chemicals
- Food Processing
- Education
- Healthcare
- Electrical Equipment & Components
- Micro Enterprises
When a business is being assessed for a cash flow loan, this helps us identify and apply the statistical model best suited for that sector, which then results in the least probability of default.
Backed by data science, UGRO Capital’s model eliminates the need for subjective assessments and evaluates solely on the basis of data. This reduces the significance & reliance on collaterals and empowers SMEs to grow, which is UGRO Capital’s approach to cash-flow based lending.
Disclaimer:
This write-up is prepared for general information purposes only.
