Avendus Finance, the structured finance provider and Avendus Capital's Non-Banking Finance Company (NBFC), has unveiled plans to begin financing of Small and Medium Enterprises (SMEs). Avendus Finance offers customized financing solutions made specifically for mid-market business concerns like asset financing, sponsor financing, acquisition financing, project funding, recapitalization, and bridge funding among others. The company plans to gain entry into the SME financing market by lending to mid-market business distributors, vendors, and dealers.
According to Sandeep Thapliyal, the CEO and managing director of Avendus Finance, the planned SME venture is anchored around the premium quality mid-market businesses. The latter markets will be analyzed and then their value chain observed to provide financing. The value chain, in this case, consists of vendors, distributors, and dealers. The company understands the mid-market ecosystem extremely well. He pointed out that the supply chain business is a favorite of the top-end or larger corporate segment. Multiple NBFCs and banks have created businesses to cater to that particular market. Avendus, Thapliyal said, will change the way the world goes on about this kind of business.
Thapliyal elaborated, saying that no bank will hesitate to finance a well-known automotive dealership. It is a component of the channel financing business. Avendus' entry into SME financing will assist to diversify the company. It is expected to be a major revenue earner. He said that the opportunity in SME lending business is a huge one. The ability to scale is much better compared to structured credit. He pointed out that a huge opportunity exists in that space as adequate credit is not available from smaller vendors catering to mid-market dealers or businesses. The latter suffers from adequate credit from the formal channels. They also need to tap into the informal credit channels which are found to be painfully expensive.
Capital funding needs
According to Thapliyal, about 20 percent of the turnover is needed for working capital funding. This makes it a funding requirement amounting to anywhere between $200 billion and $250 billion. Even if 10 percent of the market is captured, then that market is also a large one, coming to the tune of $25 billion to $30 billion. These businesses suffer from a restricted formal credit availability. It is mostly the PSUs which keep funding them. Since PSU banks have now moved to slower lending, new lenders have an opportunity cut out for them.