Sellers on e-commerce platforms – many new and some existing ones – are likely to face a funds crunch in stocking up for the upcoming festive season due to a squeeze in working capital loans to small businesses.
These small and medium-sized merchants are finding it tough to break out of the vicious cycle of sputtering offline sales – which has locked up working capital – and lending taps going dry from e-commerce platforms because they lack historical performance data to facilitate loans.
Additionally, banks and non-banks have tightened eligibility norms for loans to third-party e-commerce sellers, inducing a demand-supply constraint in working capital loans to online sellers, according to multiple sellers, executives and industry watchers.
“I have a loan of about Rs 50 lakh, and banks (and NBFCs) are unwilling to lend more money to me,” a seller of fashion accessories on ecommerce platforms told ET.
“I am trying to renegotiate the terms of my existing loan with them, and my working capital is stuck at many different places,” the seller added.
ET spoke to four other sellers — two of whom are in the business of selling apparel and fashion accessories and were in no position to pile on more debt.
The other two — one sells computer peripherals while the other sells mobile phones — said they were planning to take loans to procure inventory for the next two months.
Fashion category under pressure
A large proportion of sellers on e-commerce platforms are in the fashion and apparel space, according to Satish Meena, an analyst with Forrester Research.
This segment has not recovered as well as other categories, which could be one reason why fewer sellers are taking on debt ahead of the festive season.
“Even if we tell lenders that some of these guys are doing well on our platform, they may not get loans from banks as they may already be stressed or lagging in payments on another loan,” a top e-commerce executive said, adding that sellers were being cautious about making commitments this time around.
Lenders, which include traditional banks and non-banking finance companies as well as new-age fintech firms, usually work with marketplaces to source information — including how long a seller has been on the platform, the sales it has clocked, level of customer returns, growth in the business and customer ratings.
Interest on working capital loans in the sector range between 16% and 18% per year and are generally higher during the festive period due to increased demand for capital.
“It’s not just the inability of lenders to give loans, but new sellers are unsure how much of their working capital to lock up in inventory for sales. Some new sellers in this space already have a bit of working capital crunch, but if they want to take on more loans, there’s insufficient data on them for lenders,” another e-commerce executive said.
Homegrown e-tailer Flipkart said that while lenders had taken a cautious approach to approving loans in the initial days of the Covid-19 pandemic, it has seen a steady growth in loan approvals to sellers on its platform over the past few months.
“We are further innovating with our lending partners to offer competitive interest rates, secured lending options against collateral or gold that could provide MSMEs the much-needed capital,” said Ranjith Boyanapalli, Head – Fintech and Payments Group at Flipkart.
Snapdeal, too, said that it had seen no large variance in the number of sellers applying for working capital loans from lenders this year.
Amazon did not respond to ET’s queries till press time Wednesday.
Anurag Jain, founder and executive director of fintech player KredX, said that there is usually an uptick of 20-50% in annualised limits for sellers during the festive season.
“We are anticipating good sales on e-commerce this festive season, be it electronics, white goods, or any other essentials, and we’re hoping that these sellers can benefit from that,” he added.