The rise of quick commerce, also known as ultra-fast delivery, has completely transformed the way we shop. What started as a convenient service, delivering groceries and essential items to our doorsteps in just a few hours, has now become a standard expectation for many consumers. Platforms like Zepto, Swiggy Instamart, and Zomato’s Blinkit are leading the charge, bringing everything from snacks to household products to customers faster than ever before.
As the demand for lightning-fast deliveries continues to grow, the industry faces a significant challenge: how to keep up with the funds needed to make it all happen. Behind these rapid deliveries lies the need for constant cash flow to maintain inventory, scale operations, and fund marketing campaigns. For quick commerce companies, maintaining a steady stream of working capital is essential. But where do they get this money? Let’s dive into the world of alternative funding, which has become a critical resource for these fast-growing companies.
Quick Commerce: Alternative Funding Sources for Rapid Growth
Quick commerce companies are in a constant race to meet growing consumer demand. To do so, they require substantial capital to stock inventory, manage logistics, and fund their marketing efforts. In fact, it’s estimated that around ₹1.66 trillion in credit will be necessary to sustain the growth of this sector.
Traditional financial methods, such as bank loans, often cannot keep pace with the rapid expansion of quick commerce. This is the point at which alternate funding becomes relevant. Platforms like Recur Club, Klub, GetVantage, and Velocity have introduced innovative debt solutions, offering an alternative to traditional financing methods. These platforms have already provided hundreds of crores in funding to quick commerce businesses, enabling them to fuel their expansion.
So, what are the different ways quick commerce companies are raising the necessary capital? Let’s explore the key methods:
- Debt Financing
Debt financing is the process of raising money by selling investors bonds, notes, or bills. In quick commerce, this could mean short-term debt to cover everyday expenses, such as salaries, or long-term debt to acquire assets like real estate. While this approach provides immediate funds, it requires the business to repay the borrowed amount with interest. If the business fails to meet the repayment obligations, it can lead to financial strain.
- Equity Financing
To raise money for equity financing, firm shares are sold. This method allows businesses to secure funds without taking on debt, but it does come with a trade-off: ownership. By selling shares, the founders or current stakeholders give up a portion of the company’s equity. In quick commerce, however, regulations such as SEBI’s restrictions on equity-based crowdfunding limit the options available for smaller players to raise funds this way.
- Revenue-Based Financing (RBF)
Revenue-based financing (RBF) is a more flexible option. In this model, businesses raise capital in exchange for a percentage of their monthly revenue. The business repays the loan by sharing a fixed percentage of its revenue until the full amount is paid back. RBF does not require the company to give up any equity, which makes it an attractive choice for startups that want to retain control. However, it requires a consistent cash flow to ensure that the payments can be made on time.
- Government Grants
Companies in the quick commerce space can also explore government schemes such as the Startup India Seed Fund Scheme or the SIDBI Fund of Funds. These programs offer grants and loans to startups, helping them secure the necessary capital without incurring significant debt. These grants support companies in their early stages, providing the financial foundation for growth.
How Alternative Funding Works
For quick commerce businesses, the key advantage of alternative funding lies in speed. Traditional loans from banks are often slow and require extensive paperwork. Moreover, banks usually demand collateral, which small businesses or startups may not always have.
Alternative funding platforms, on the other hand, are designed to offer quicker and more flexible access to capital. For example, platforms like Recur Club connect businesses to lenders such as HSBC, INCRED, and Aditya Birla Capital. In 2023 alone, they disbursed ₹1,000 crore across 500 companies, fueling the growth of the quick commerce sector.
Peer-to-peer lending platforms, such as Faircent, offer a unique way to access funds. These platforms connect individual investors with businesses in need of capital. Investors create accounts and deposit money, while borrowers submit their funding requirements and business plans. After assessing the risk, the platform assigns an interest rate, and the lender and borrower enter into an agreement.
The speed at which businesses can access funds through these platforms is a significant advantage. By providing much-needed capital quickly, alternative funding enables businesses to scale faster and respond to market demands promptly. This is crucial in the fast-paced world of quick commerce.
Quick Commerce: Overcoming Challenges with Alternative Funding
While alternative funding offers flexibility and speed, it also comes with significant costs. Platforms like Recur Club can take 15-30% of a company’s monthly or quarterly sales, and interest rates for debt financing can rise to 20%, much higher than traditional loans. These high costs can pressure businesses, particularly those facing cash flow issues or fluctuating revenues. Furthermore, debt financing demands repayment even when business performance dips, and revenue-based financing requires businesses to allocate a fixed percentage of their revenue for repayments, which can strain cash flow.
Despite these challenges, alternative funding is essential for many quick commerce businesses to grow rapidly and stay competitive. These financing methods enable companies to access capital quickly, allowing them to scale operations in response to market demands without relying on slower, traditional loans. While costly, this approach helps businesses meet the fast-paced expectations of consumers and maintain operational momentum in a dynamic market.
