Marketlend Academy: What lending challenges currently face SMEs?
Running a SME is always a challenge and funding one can be particularly difficult. Marketlend Founder and CEO Leo Tyndall and his team are focused on delivering a more transparent and fair marketplace for SMEs. Part of this job is helping to educate the market to help SMEs avoid some of the pitfalls in the lending space. Watch below or scroll down for a transcript of his interview.
The problems there is there’s no long-term support to the SME industry. So, the typical loan and if you look at the last fintech report, they pointed that the majority of their lenders lend between six to eight months. For an SME, they need a lot longer loans, they need capital to be turning over regularly. They have growth or they have needs, and what happens is these lenders are firstly doing principle interest payments, it’s a short-term lend, it’s a little bit like what I would call a sugar high, it gives them money right there and then, but then it doesn’t set them up for the long term. The classic one is the … talking about the tea company, she’s able to deliver to Sydney Opera, but with … line, it would have been P and I and it would have drained her cash flow on a daily basis.
So the issues that seemed to be with the SME lenders is that they, themselves, probably still haven’t been able to get their heads around what the real risk is, so as a result of that, what they do is just go in quick and come out quick, and it is a case that they’re generally not interested in lending over about 50,000 dollars. They don’t want to go for higher, and part of the reason for that is if you set up a direct debit for say, 100,000 dollars, and you got back to the client and you say, “Look, here’s what you’re going to be paying per day,” the client may balk at it because he’ll go, “Well, that’s going to strain all my cash flow…”
Well, it’s not that they get away with it, it’s a need, it’s a demand thing, and it’s speed. So if you ring up tomorrow and you ask for a loan, and get (other firms), one of the others can give you a loan within 24 hours. We had a comment from one of our borrowers who was lending through us, and then they got a … loan, and they turned around and said, her husband actually did this, and her husband isn’t the finance guy, and she said it was so easy: just click the buttons and you went ahead and did it, and as a result of that, they caused him problems because we looked at the risk and said, “Well, why do you have this … loan that’s draining your cash flow?”
And it’s more that businesses don’t have time, typically, to look at their various options. They’re not strongly educated in that area of finance, and then they’re just looking at speed. They need to pay their next supplier, they need to pay their wages, and as far as they’re concerned, they’ll fix it up next day and it’s fine, and that’s their focus, and so it works okay for a while, but if you don’t have a very clear plan of how you’re going to pay it down, well, then the problem is it bites into your cashflow, and we’ve seen that happen a number of times.