Marketlend Academy: Why not give an SME more money than it needs?
Listen to CEO and founder of Marketlend, Leo Tyndall, discuss the balance needed in borrowing and investing to ensure both parties are satisfied. If you want to read the full transcript, please see below.
Well, ’cause they’re gonna have to pay a rate for money sitting in a bank. They’re going to pay the unutilized fee, which is typically 7% per annum, and they’ll be paying that fee whilst the money is not being used. And the reason they’re paying that fee is the investor has actually given the full commitment to the money, and he’s actually placed the money in the bank account saying, “You can use it whenever you want.”
However, you need to get valid invoices, obviously. And in this case, if we turn around and we have too large a limit, they just won’t utilize the facility and it’ll become a cost for them. So what we do is, we look at the fact that we don’t want a situation where the investor’s not getting the return that they expect because they’ll be saying, “Well I don’t want money sitting in the bank and earning 7%,” although these days 7% in the bank is quite a good return.
But at the same time, you don’t want the borrower saying, “Why am I paying 7% for something where that money, sure it’s a commitment but I’d rather only pay it when I use the money?” So we try to run a bit of a balance there and ensure that both parties are successfully happy in the arrangement.
Marketlend Academy: How to balance the rigor of collections with caring for SMEs?
Listen to CEO and founder of Marketlend, Leo Tyndall, discuss how to balance the rigorous collection process with caring for SMEs. If you want to read the full transcript, please see below.
The way that we balance our collection process with the SMEs, is what I mentioned before that we contact them in the first day and second day. What happens is that representative calls them. And when he calls them he talks to them, and then he actually puts them in touch with our relationship manager. So we have a single relationship manager that is responsible for the area of post-settlement, and his job is to then communicate with that client and identify what’s going on. And if it’s a simple thing, and we’ve had them before where they’ve had one debtor who’s not paying on time or something similar, then he will work with them on how can we assist.
In some examples, what we’ve done is, we’ve then flown our financial controller, who is a chartered accountant, to go and sit with them and work out what’s going on with their cash flow. Maybe rejig some certain things in their cashflow, and suggest various options.We’ll also look at possibly getting limits against some of their debtors that they haven’t sold us the invoices to, to see if we can improve that position. We’ll also suggest to them to look at other options of possibly pulling on an equity investor, or something similar.
So it’s not as harsh as we turn them off. It’s very much a case of working with them. When I say time is the enemy, time is the enemy if we don’t work with them and we just turn off. And this is something we’ve always had SMEs communicate with us when you can’t pay. The worst event we can have is where they turn off all their phones and it all just becomes too hard and they went, “Uh-uh-uh, I just can’t handle it.”
Marketlend Academy: growing your business – the golden niche
Overreach is one of the biggest mistakes made by entrepreneurs. Despite the mountains of evidence supporting the concept of niche marketing, startups have a hard time fighting the urge to try and be all things to all people.
The impulse to abandon the niche strategy and go for the bigger prize is understandable. After all, if having a hundred customers is good, a thousand must be better. In this case, intuition is a poor business partner. To suddenly dump 10X the customers on a small business would be catastrophic in most cases.
It might surprise you to learn that the vast majority of small business owners have no desire to grow their business. This was one of the findings from a study by Erik Hurst and Benjamin Pugsley of the University of Chicago. Meteoric growth is not the brass ring for which every small business owner is reaching.
It is more important to be a right-sized business than a growing business. That is true whether you are a software developer or a hairdresser. One of the key reasons startups end up overreaching is they have never considered what the right-sized business looks like for them. Here are a few others:
Be Realistic
Many Entrepreneurs dream of becoming the next Steve Jobs. And that’s a real problem because Steve made it look easy. Companies the size of Apple, Microsoft, Google, Amazon, and Facebook seem to defy the rule of finding and sticking to a niche.
However, the appearance of universal appeal is an optical illusion. Each of those companies owes their success to mastering their niche. Apple does not make products for everyone. They have a narrow appeal that happens to run very deep. They are interested in the top of the market, not the fat middle. Microsoft makes their money from enterprise services. Google is an advertising company.
Each of these companies know who they are. When they go off track, it is almost always due to forgetting their niche and reaching for someone else’s piece of the pie. Even the big companies are very focused. So don’t fall for the illusion that they defy the niche strategy. They don’t defy the niche. They define it. Any appearance to the contrary is an optical illusion.
Establish a Base
Even if you are planning a meteoric rise, it is important that you establish a solid base. Your base consists of two parts:
- Your first minimum number of steady customers that keep you in business. If you fail to gain other customers in other markets, your base will sustain you.
- Your first business identity, product, and service that gained you your steady customer base in the first place.
A well-established base is a safe place to which you can always return if that becomes necessary. It is your fallback position, and the place from which you can build again. If you do not establish that solid base before reaching higher, you have no safe place to return.
Your base is your first and most important niche. Make sure it is always super-served.
Be an Expert
The way to become an expert is to narrow your niche. Don’t just make candles. Make artisanal, organic candles sourced from local materials designed for religious ceremonies. Now that’s a niche. Not everyone is going to want one of those. But everyone who does will want it from you.
Once you establish your area of expertise, you can slowly branch out. But you might not want to branch out if you find that your niche is satisfying. You might actually make more as an expert in a small niche than you would as a generalist in a large one.
Super-serve, Not Super-size
Success is in super-serving a loyal base, not supersizing your business to an unmanageable level. There are challenges large businesses face with which small businesses needn’t bother. Those challenges come in the form of investors, regulations, employees, and infrastructure.
None of these are bad in and of themselves. But they are challenges that can apply downward pressure to cashflow, life-balance, and focus. Remember Steve Jobs grew Apple to the point where he was no longer welcome in his own company.
You can never reach your brass ring without entering through the golden niche. Every successful company is well-defined, with an established base to count on when times are tough, expertise in an area that makes them unique, and a super-served core that has helped them become super-sized.
Marketlend Academy: How unfair credit conditions inspired Marketlend
Listen to CEO and founder of Marketlend, Leo Tyndall, explain why he created Marketlend. If you want to read the full transcript, please see below.
The reason why I created Marketlend is I saw a gap in the market. What I saw was that at the smaller end of town, the SMEs were finding it difficult to actually obtain extended credit terms. Whereas the bigger end of town was getting those. So what I mean by that was that what we found was that SMEs were actually turning around and having to pay, say, seven days or 30 days net of an invoice. Whereas the bigger end of town was paying 90 days extended credit.
So what we did was, we set up a business which was essentially able to give those smaller end of town clients, and these are SMEs between typically turning over 250,000 and up to 5 to 10 million, the same advantages as the bigger end of town. So that was to essentially enable them that they could buy goods on credit, have 90 days to sell those goods, and within that time then they would have the funds to repay back the 90-day credit or in the case of a debtor finance arrangement where they were able to turn around and fund their working expenses and working capital, and they were able to do that within the cycle that they would have in whilst they’re waiting to be paid by a large debtor.
Marketlend Academy: The Biggest Mistake An SME Can Make
Listen to CEO and founder of Marketlend, Leo Tyndall, discuss the biggest mistake an SME can make when it comes to its financial health, and why time management and decision making are critical. If you want to read the full transcript please see below.
I think it’s difficult to say it’s a mistake. I think it’s, it’s unfortunate to say a mistake. I think what’s happened is that SMEs don’t have a lot of time to actually make decisions. And the biggest problem they have is that the options for them to pick the right financier are just not in their face, so the mistake they do is not enough due diligence.
Now, is it a mistake or is it just a difficulty? I think it’s more like a difficulty they have in their space that the first thing most SMEs think when you’ve asked them about finance is “The bank.” And then they’ll go to their bank and they could waste a lot of time where they could find they don’t have probably collateral and can’t even get a loan, or you have this thing that they go on the web and they see an SME lender, and they click a few buttons. Go, “Whammo, I’ve got my money.” But they don’t look at the implications and how that affects their business as a whole.
So the biggest problem that I think we have in Australia, which is a very unusual problem in Australia, is that we don’t have a very deep equity market for small SMEs and we don’t have a very deep debt market for SMEs. So, as a result of that, they don’t have the option say like in the US or something similar where they can actually bring on venture capitalists, or they can bring on other funders to help them with the funding. They have to essentially just take what’s right in front of their face, and the problem being what’s in their face is whoever makes the biggest noise. It’s the SME lender that’s charging 40%. He’s the one who’s going to get the biggest, you know, hits because he’s the one that’s in everyone’s face. They’re not doing enough due diligence.
Marketlend’s funding option GreenLend encourages green investment
This week The Fifth Estate is reporting about Marketlend’s new clean energy funding option GreenLend, which has garnered the participation of leading Australian renewable energy company Planet Ark Power. The new funding plan is on track to connect more environmentally conscious investors with green businesses.
Investors are increasingly looking to invest “beyond” their checkbooks and with their consciences, but they can also find it difficult to find and fund businesses that align with their values. In particular, many investors are seeking to invest in solar and renewable assets, while also looking to avoid big banks and high interest rates.
That’s where GreenLend offers a solution since it was designed to accelerate the expansion of solar capacity and other clean energy in Australia. It helps sophisticated and wholesale investors directly fund clean energy SMEs by offering them a special interest rate on loans from Marketlend’s investors.
According to founder and CEO of Marketlend, Leo Tyndall, Marketlend has always taken a long-term view when it comes to financing SMEs.
“We want businesses to thrive long into the future,” he says. In fact, since its launch in 2014, Marketlend has funded over AUD$56 million to Australian SMEs. But GreenLend specifically targets Australia’s energy future by “ensuring today’s energy innovators get the access to capital they need so they can continue addressing one of the world’s most pressing concerns – climate change.”
SMEs can apply for funding on Marketlend’s online lending platform, and those businesses in the clean energy space will be marked with a special badge to help investors identify them. This will be based on criteria that will include supporting SMEs largely or wholly focused on clean energy, sustainable products, recycling and energy efficiency. Once identified as ‘green’, these borrowers receive an attractive interest rate of 8-9 percent while investors in these clean energy businesses will typically earn a return of between 5 percent and 7 percent.
The funding plan’s first borrower, Brisbane-based Planet Ark Power, has received a $500,000 loan from fifty investors through GreenLend. It will be use the money to improve cash flow, trade credit, and working capital. Planet Ark Power’s mission is to help businesses, governments, and individuals reduce their impact on the environment. Executive Director Richard Romanowski explains that the energy provider’s main focus is making renewable energy as efficient and hassle free as possible. The greater the uptake of renewables, he explains, the greater the benefit to the planet.
But in the past financial hurdles had hindered growth plans, which is why Marketlend’s GreenLend can help the company. The funding plan connects Planet Ark Power directly with investors, and helps the company rapidly increase recruitment and installation of more rooftop solar panels across Australia.
“In turn, we’re able to save households and businesses millions of dollars while reducing our carbon footprint – it’s game changing stuff,” Romanowski says.
While Planet Ark Power is one of the first companies to receive funding, Marketlend is uniquely placed to connect more SMEs with needed funding, helping them progress across their growth curve and achieve scale in ways they couldn’t before.
Marketlend Academy: collection protocols at marketlend
Listen to the CEO and founder of Marketlend, Leo Tyndall, explain Marketlend’s collection protocols and emphasize the importance of communication. If you want to read the full transcript, please see below.
Marketlend has discovered over time that – and it sounds strange – but time is your enemy when it comes to collections. The longer it takes for you to collect, the higher risk you have that there’s no assets left. So as a result of that, what we typically do in collections is this: If someone fails to pay, we actually have an alert system. We have three alert systems. We have an alert systems where we tell the client before it’s due to pay. We send them an SMS, we send them an email. If it doesn’t pay, they also get another alert, an SMS. On top of that, we will have one of our representatives call them and say, “Hey look what’s going on”, and understand it. That’s on the first occasion. If the representative can’t get through to them, we then have a second representative call them. So we have two of them chase them up.
Then after that, that’s within the one day. When it comes to the second or third day, we will try to rerun the direct debit, ’cause everything is paid through direct debit. And if that direct debit fails on the second occasion, then it moves to what we would say a more severe collection event. They are then put on what we call an alert system, which sends them out a message saying, “You’re on second direct debit. You do realize that you’re trading in solvent.” And then what we will do is within the next few days we will try to resolve it. If we still can’t get in touch with them, we forward it across to a collection agency, which is a subsidiary of QBE, and they will then take over the collections process.
If we think it’s futile even sending it to them, we will then do a thing like issue a statement of claim or a statutory demand which takes legal proceedings. And we move very quickly. We’ll have that done within 30 days. Depending on the amount, we’ll also investigate whether it’s worthwhile for us to actually send one of our representatives up there. Or if it’s a lower amount, we will send, we have an agency that sends a, what we call a field agent, and that field agent would go out there and do a report and tell us what’s going on. So what we do is- so that’s in the event that they’re not communicating. If they’re communicating, we will then see where they’re at. And if they make a promise, we will follow that promise. If they keep to their promises, great, they’re back on track. If they don’t keep to their promises, well then we escalate it further. And we engage our legal department and also an external lawyer.
Inadequate regulation of fintech leaves Australian SMEs at risk
By all accounts, Australia is poised to become one of the world leaders in fintech. We’re an incubator for new ideas and experimentation. Despite this, an inadequate regulatory environment and lack of support for small-to-medium enterprises (SMEs) continues to put the fintech industry, and the small business community, at unnecessary risk.
The stakes for Australia’s economy are high. Small businesses, which employ half of the nation’s workforce and make one fifth of its domestic product, remain vulnerable to the loan shark practices of fintech bad guys.
That’s true even with a new voluntary code of lending practice that Fintech Australia recently put in place to self-police albeit not all lenders are even members of the organisation. The code claims to standardise transparency and create a mechanism to resolve disputes, but only six fintech companies have signed on and it has no real teeth.
While the code includes a pledge to lend only to SMEs that have the capacity to repay, there is no mechanism to stop loans to SMEs that have outstanding loans from other fintechs — a practice known as “stacking.” Nor does the code address some lenders’ insistence on repayment by relentless direct debits that can drive SMEs out of business. Finally, it’s not clear whether the code can be enforced or is merely a set of guidelines.
In other words, we’re not signing up because it is not a legitimate attempt to enable responsible lending — it’s an empty gesture for a quick PR hit. As mentioned it does not apply to non-Fintech Australia members. Furthermore, its definition of an SME loan excludes the majority of the lending in the SME arena.
In effect, then, the problems that brought on the code still exist. As an experienced SME lender, we are gobsmacked how anyone can suggest that the majority of SMEs will understand the real cost when a loan is offered on a factor rate (shouldn’t it be as simple as the question, what is the interest rate after all costs?). In fact, reports of ASIC’s recently completed review of one of the most prominent fintech SME lenders are notable for absenting lender’s factor rates from review and thus excluding what is arguably the most problematic and damaging part for SMEs from scrutiny.
While fintechs can still serve startups as an excellent alternative to traditional banks, particularly if they’re small- or medium-sized, some startups will likely still fall prey to unscrupulous practices. We have seen SMEs who have had their cash flow drained by frequent debits they could not afford and literally have to close up shop, and, even more unbelievably, it was accountants and other financial advisors who recommended these kinds of loans for their unsuspecting clients.
So the regulatory environment needs to be strengthened, and Australia needs to provide more education and better support for small businesses. The reality is, it’s easier to start a new business in Australia than it is to get a driver’s license, and that’s not a good thing.
There’s a big difference between having a good business idea, and having the business acumen to get it off the ground. More than half of SMEs close within the first three years, and the most common reason is financial hardship.
There are some simple steps that the government could take to address these problems. It could apply the National Credit Code for Retail to SMEs, so they would come under its protections, at least for loans under A$100,000. These include a bar on extending credit to consumers who are likely to have difficulty making payments. Further, the code of lending practice should be amended to forbid loan stacking and mandatory debits. It could remove prepayment penalties, why should an SME suffer to paying a loan out early. Isn’t this a sign of a well run business?
The government should also support SMEs with a licensing and education. With such a program, new entrepreneurs could have a better understanding of money, marketing, cash flow and lending — including the ability to spot a bad loan a mile off.
Why is this so crucial?
It’s crucial because SMEs serve as the economy’s engine. If too many SMEs go belly up from poor business decisions, including bad loans from shady fintech lenders, it affects a fundamental base of our economy and it hurts Australia’s reputation as a fintech innovator.
Our fintech industry now ranks among the top ten in the world. If we pay attention to the small businesses upon which it is built, Australia can further strengthen its reputation. Everybody wins: The SMEs, which will be less likely to go out of business; the lenders, who will be less likely to lose money on bad risks; and the nation, which will continue to thrive as a world leader in fintech.
Marketlend Academy: What have you learned about your investors?
Listen to Jane Lehmann, Marketlend’s Head of Investor Relations, share what she has learned about Marketlend’s investors. If you want to read the full transcript, please see below.
What I’ve learned about our investors is because they’re experienced, sophisticated and/or institutional um, they are as the name suggest, well experienced in the sector so they understand the risks that they’re entering into. They have um a very good um business eye, very good business sense um will look at a particular um investment they’re or loan that they’re potentially um taking an interest in and can ask very informed and- and specific questions about the risk profile um at hand. And so its very important to us to ensure that we provide the responses and type of information that they need because we need to ensure they- we have their confidence um that the information that we provide that the facilities that we pulled up are- are the type of investment that would meet their needs and um their interest.
Marketlend Academy: what makes Marketlend unique?
Founder and CEO of Marketlend Leo Tyndall explains the significant differences that make the Marketlend platform so powerful and supportive for investors. If you prefer, you can read the transcript below.
What makes Marketlend unique is that we’re able to give SMEs direct access to the capital markets, but in a secure and also price competitive environment. By using insurance, and also using loss reserves, we’re able to give the SME the benefit of those so therefore getting better pricing for them, and at the same time give the investor comfort that when they invest in an SME, that they have additional protection against the possibility of a loss. Now, matching … In, in, by doing this we use trade credit facilities, which is an unusual thing. In that, what we’re doing is, we’re becoming the owner of the goods. And then essentially what we’re finding is the SME’s able to then buy more goods and then within 90 days repay us, and therefore giving them an improved profitability so that they have a, a better, you know, cost of funds. And then also, giving them the ability to have money now versus waiting for 30, 60, 90 days depending on the type of facility. So it’s actually having the money to actually pay expenses or buy more goods and enable them to improve their profitability of their business.