Understanding cash flow lending

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 as collateral.

In recent times, cash-flow based lending has emerged as a game-changer, providing businesses with flexible and efficient means of acquiring capital.

In this piece, we will explore how cash-flow based lending works & U GRO’s revolutionary model for cash-flow based lending.

What is Cash-Flow based Lending?

Unlike traditional collateral-backed lending, cash-flow based lending focuses on assessing businesses’ financials such as bank statements or GST returns as the primary basis for assessing creditworthiness.

This method emphasises on a borrower’s cash generation capabilities and financial stability.

However, it becomes difficult for the lender to scale this business as it is majorly reliant on the touch and feel assessment of the customer.

How is U GRO doing Cash-Flow based Lending differently?

We at U GRO Capital have revolutionised cash flow based lending to make it scalable.

We developed a templatized and scientific approach to cash flow based lending that uses machine learning & statistical analysis.

It views every small business through a lens of the ecosystem in which it operates i.e. the sector in which it operates & 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 & 9 of them have been chosen by us for cash flow based lending. They are as follows:

  • Hospitality
  • Light Engineering
  • Auto Components
  • Chemicals
  • Food Processing
  • Education
  • Healthcare
  • Electrical Equipment & Components
  • Micro Enterprises

When a business is being assessed, 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, U GRO’s model eliminates the touch and feel assessment time and evaluates solely on the basis of data.

This reduces the significance & reliance on collaterals & helps SMEs grow which is the U GRO approach.


This write up is prepared for general information purposes only.

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