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Digital lending startup Capital Float raises USD 15 million

Lending startups are staring at a tough time ahead as getting loan from NBFCs and collecting money from debtors is going to be a tough nut to crack.

Investments photo. Source: Shutterstock.

Bengaluru-based digital lending startup Capital Float said Monday it has raised USD 15 million in fresh funding from its existing investors Ribbit Capital, SAIF Partners, Sequoia Capital India, and online retailer Amazon.

The company said it plans to utilize the new funds to increase its capital base and expand lending to small and medium enterprises (SMEs) and consumers. With this round of funding, the total equity raised by the company till date stands at USD 125 million (INR 800 crore). Apart from this, it has also raised USD 300 million in debt funding to date.

The funding comes at a time when the industry is suffering from the snowball effect of the global pandemic caused by the novel coronavirus. Lending startups, many of which hold non-banking financial company (NBFC) license, are in a bad shape as they have slowed down on their payment collection from debtors, impacting their operating capital. The global healthcare crisis has also dried up their bank accounts as financial institutions and larger NBFCs are thinking twice before providing credit to the lending startups. With no one to turn to, these startups are leaning on their backers to help them get through the crisis by creating a cash runway for the next six to 12 months.

“We’re eager to significantly increase our lending capacity once the lockdown is lifted to enable SME growth and consumer spending at scale,” Capital Float founders, Sashank Rishyasringa and Gaurav Hinduja, said in a joint statement.

Founded in 2013, the company offers working capital loans to small and medium enterprises operating in manufacturing, trading, and services as well as instant consumer loans for online purchases in partnership with Amazon India.

Since its inception, Capital Float claims to have disbursed USD 1.2 billion to more than 500,000 clients in over 300 cities.

Although the company had begun the year on a high note by entering a co-lending partnership with Japanese financial services major Credit Saison in January with the aim to disburse business loans to India’s under-financed MSMEs, the COVID-19 crisis has posed one of the biggest challenges the lending segment has seen so far, derailing most of the companies from their respective growth tracks.

“A lot of these consumers and SME-facing lending companies are looking at zero income since there’s no disbursal,” Ashish Taneja, partner at early-stage venture capital firm GrowX Ventures told KrASIA in a recent interview. “The cash flow of business and individuals they have lent to is also impacted, so recovering money from them is going to be a mammoth effort.”