A BETTER EVALUATION SYSTEM
Risk and reward are two sides of the same coin. For lenders looking for portfolio stability diversification is a crucial attribute. This is especially true in SME businesses.
Think of SMEs as being in a stage when a plan is just starting to taxi to take off. The business is just gaining traction. Customers are finally seeing the value of the products/services of the SME. The various functions of the business are coming together. The market proposition has been articulated and delivered. The speed with which the transformation of the business which was doing things that cannot scale at start up stage ( literally moving at the speed of the turtle) now starts to move like whirlwind. At this stage for the business the pressures are lived from day to day. The promoters are constrained to bootstrap and make the business move to the next stage of growth by watching each activity like a hawk. Most businesses appear extremely risk at this stage. But this is precisely the stage that promoters live for — and are pulling out all stops to make things happen. Money and working capital availability is at the centre of all the action at this stage.
For someone who knows how things are moving at this stage evaluation is on the management action and their strategy. Information flow is restricted at this stage to the external world. Promoters would also like to play their cards close to their chest. However the suppliers and customers who are engaged with the business are in a strong position to take a view on the business depending on their proximity. The intent is not to leverage confidential information but to gain a perspective of the business from their point of view.
They are in a very key position to make an evaluation of the business and provide references which can be driven by incentive. The result of providing a key insight will be a higher likelihood the SME business succeeding — and for the investor and lender this information is very crucial. Their bets can turn a whole lot better with this information. Decisions on investor/VC/lender can determine the right type of advice that could influence the SME very positively. And provide the right encouragement to stay the course on financial roadmaps.
The lifeblood of working capital financing is predictability of cash flows — which in turn is a function of a robust business model and a strong management team amongst other things. Many of these characteristics are determined by collating information from multiple sources that provide strong credible indicators. Past performance is the only indicator for future behaviour despite all the Crystal Ball type tools that are available today.
There are many trade credit risk assessment companies that offer debtor insurance. They offer this based on proximity to the trade and their understanding of business cycles and overall business climate. The predictors of likelihood of debt repayments schedules and debtor days metrics are driven by these key anchors. Their views on the business climate come from constant interactions with key suppliers and customers who echo market developments to them on a daily basis. They are privy to the latest market information elements which drive the credit decisions.
Now assume that for a lender this information is now available across multiple sources which are driven by the same need as theirs in sharing this information — the same need as portfolio quality. While this information is available but there are no incentives for sharing the same.
Metrics that will be used will very different from betas and alphas. Strategic supplier information sources will be graded based on performance and for each type of business the information being mapped for decisions will be upgraded periodically.
This will also result in a higher level of transparency for investors in all segments.
Dropdeck.io now offers this same facility. Seek trusted investors/lenders and seek support. Also get “interested” parties known to the borrower/investee make crucial referential decisions that can help in the moments of truth.
Key highlights of Dropdeck’s rounded offering are covered below.
Dropdeck not only incentivises stakeholders in the investment/lending supply chain but also widens the choices for the seeker. From an investor/lender POV it diversifies their portfolios and helps gauge new types of risk by bringing in cross border opportunities. Subject to legal regulations and tax regimes this can be a very useful new source for SMEs looking to seize business opportunities and also go global.
