Credit and Finance for MSMEs: While moratorium and other government support measures came in later last year but since liquidity initially was stuck for all, working capital emerged as a severe constraint.
Credit and Finance for MSMEs: Hospitality was probably among the first sectors to get hit due to the pandemic and is also arguably the last to recover. Covid had impacted restaurants and hotels almost overnight. The challenge was acute for high visibility outlets that had high rentals. While moratorium and other government support measures came in later last year but since liquidity initially was stuck for all, working capital emerged as a severe constraint in sustaining through the lockdown period via home deliveries. This was true for quick service restaurant brands like Biryani Blues that operated 40 restaurants till Covid last year, of which 11 were located in malls and were outrightly shut right after the lockdown was imposed.
While there wasn’t much liquidity pressure in the first month of the lockdown as vendors, landlords, employees hadn’t asked for payments and salaries respectively but after 45-60 days into the pandemic, lenders had started asking for their piled-up interest while landlords sought rent that hit Biryani Blues’ cashflows. To get equity investors in the nick of time was difficult for the founder Raymond Andrews.
While Biryani Blues’ private equity and HNI investors helped the brand with some equity as a top-up but amid uncertainty, no one had a fair idea of how much credit would be enough as there wasn’t clear visibility on the Covid unlock and recovery after that. Andrews, though, managed to renegotiate rents with landlords and got vendors to increase the credit period from 45 days to up to 75 days. “We knew that eventually, we would be able to raise funds. So, we wanted to solve for the near term. Lenders also knew that the business would emerge out of this,” Andrews told TheSpuzz Online.
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To solve that short term credit crisis, Biryani Blues raised an unsecured loan from digital lender Indifi to ensure there is no supply chain issue. “This was the only sure shot way to quickly solve the credit problem. While the interest rate was little higher than the normal and what one would expect but we were able to get credit in three-four days,” said Andrews.
Post pandemic, Biryani Blues has added 8 new stores. The current 48 stores are spread across Delhi-NCR, Chandigarh, Jaipur and Bengaluru. However, Andrews categorically noted that digital lending platforms should be accessed only for short term credit needs.
“Such platforms should be an option when you need bridge funding for three-six months or if there is an emergency, otherwise if you want to raise debt then you should wait and get a cheaper cost debt which has longer tenure. The monthly interest payment in digital loans itself is so high that small businesses will get into a debt trap if they take too much credit. For use cases like salaries or for certain payment settlements, this channel is suitable but not for, let’s say, opening a new store. That is a sure-shot way of failure as (NBFC) interest rates are upwards of 18 per cent.”
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