Category Archives: Borrowers
Marketlend on ABC News: CEO and Founder Leo Tyndall Interviewed
ABC News just did a hard-hitting story on SME lending in Australia and they turned to Marketlend for some perspective on the question. In particular, they were looking for Leo’s thoughts on recent attempts by some players in the market to self-regulate amid general shortcomings around disclosing the true cost of loans to SMEs. Leo and the Marketlend team believe it’s absolutely essential that SMEs know what they are getting into when they seek funding and that there are no surprises.
Click here for the news story. Leo appears at the 5:25 mark.
Marketlend Academy: How Do We Assess Potential Borrowers?
Marketlend CEO and Founder Leo Tyndall wants his investors to know that no one applies for a loan on the site without a thorough review of their financials, and that transparency and responsibility –and ultimately care for the underlying businesses that borrow– drive Marketlend’s mission. In this video, Tyndall breaks down what his team looks for in a potential borrower’s financial profile. The key for Marketlend is the long term health of the businesses it lends to, because healthy SMEs thrive as businesses and as borrowers –that’s why assessing what is reasonable, fair and sustainable in terms of repayment ability is so critical. Click the video to hear about the process. Prefer to read? Scroll down for the transcript.
So, Marketlend requires at least one year’s financials. We look at their debt servicing ratios, we actually look at what it looks like before the loan and after the loan. We typically have a hurdle of 1.5% on debt servicing after the loan. We also turn around and we point out to the borrower that we’re doing a monthly charge, on the uninsured we may do weekly, but what we do, do is, we look at their ability to repay.
We don’t want a situation where we’ve advanced the money, and then they can’t pay us back. So what we’ll do is have a look at all their cash flows, we also look at, essentially, a new structure in the way of we look at their full cash flows, their expenses and then say, “Okay, what is their true flowing cash that they can afford to pay it?”
And we will go through their bank statements as well, so we will go through their bank statements, and for example, on a supply chain, we may turn around and someone says, “I want 100,000.” We look at their bank statements and say, “You couldn’t even pay 100,000 back to us on three months on the supply chain, so why would we advance you that money?”
Marketlend Academy: What do Investors Look for in a New Business?
The thought of approaching a professional investor with access to millions makes you sweat, but if you’re like many startups, you need money to get your new business off the ground. What is it that makes investors reach for their wallets?
Businesses who bring in money do several things right. Here are key points you want to present to any potential partner.
1. Do Extensive Research
A lot of entrepreneurs skip this step as they develop their product or service. But market research is crucial and it needs to cover each angle.
Start with your industry. Look at how new developments in tech affect your field and be an advantage. Make note of trends and patterns, what aspects are in decline and where the market may expand. Approach customers and ask them how they use the product or service and take notes.
Next, tackle demand. What do customers in your area of expertise want? Real estate firms may see a need for more rental properties. If you have a chain of gyms, ask your members what products or services they wish you had.
The creators of Instacart are a great example. They studied the food industry and saw the move towards deliverables. They put together a plan to expand delivery service to groceries. Today their industry is worth 2 billion USD. The company saw a demand and responded, which makes them a big draw to investors.
2. Write a Stand-out Business Plan
A business plan is your future company on paper. It lets investors see the results of all your research, understand what problem you want to solve and shows how you differ from your competition.
A good plan includes:
- A one to two-page executive summary, (an overview of your plan’s key components)
- Your research presented as proof of demand and market
- Financial data and how much money you need
- A description of your perfect customer
- A write up of any staff or team members
- Past accomplishments and future goals
Walk the line between enthusiasm and hyperbole. Use plain, straightforward language and be sure to edit several times. Ask a professional writer to look at it, make sure it reads well and seek any minor mistakes.
Your complete and polished presentation will help you stand out and make the right people pay attention.
3. Develop a strong Marketing Strategy
Break down your marketing for anyone who wants to buy into your business. It’s essential to be specific and have a breakdown of your numbers.
Take the college magazine as an example. Here is what an interested investor is waiting for:
“We ran a quick poll on Facebook and got a big response from readers aged 17 to 19.
We tested keywords in tandem with Pay-Per-Click, (PPC), on Google. A new reader costs us $4.50 and generates $30 dollars in profit.”
You know the audience, you can build the audience and be in the black. You are the expert of your project – show it.
4. Have a Working Model
Ideas alone are rarely enough. It’s those who have a working model that get the money. Show that your idea has traction and you are much more likely to get that deposit in your account.
A working model is your service or product offered on a small scale. For example:
Product: An online subscription magazine for students on surviving college
Working Model: A blog with over 1,000 subscribers and a substantial social media following
When investors see the success in your model they will see you as an asset.
5. Answer the Question: Why You?
Never forget that you are the true product, so make investors understand why you, not the competition are the real investment.
Put your best traits, biggest accomplishments, past success in the foreground. If you have a mentor, classes to help you continue your education or any seminars scheduled, bring those up as well.
The best trait about you is that you have more than an idea, you have your drive and your vision to back you up. Show investors you bet on yourself and that will help bring them around to do the same.
Marketlend Academy: A New Business vs. A Driver Licence
Why is starting a new business easier than getting a licence to drive in Australia? In the video below, Marketlend Founder and CEO Leo Tyndall explains how this is a problem and why we should think differently about the reality of starting a new venture. Prefer to read rather than watch the video? The transcript is below.
Q: What do you mean by it’s easier to start a small business that to get a driver licence in Australia?
Yeah. Well, what I mean, is it’s easier to get a driver licence first than starting a business is the reality is, is that driver licence you gotta do a number of hours, and you gotta do these tests, you’re gonna send your contact and accounting firm alike when you open up a company, and away you go. And people will take on commitments, and you’ll be operating.
The problem is, is that, directors’ responsibilities are not fully understood, people don’t realise that there is a lot more complexities around things of reporting, you have finances, or like they do when they grow, there’s no business plan required, and so they send you to get going. Some, you’ll find business plans, but are they realistic or not? So there’s all these problems that come with people setting up businesses, because there is no restriction: you can just contact one of these guys and set up a company. Now, I’m not suggesting we should have restrictions, but what I’m definitely saying, is, that businesses themselves, by the time they get started, get too carried away to actually think about all things they need to know, and unless they’re very experienced, they’re gonna find that things are gonna blow up or things are gonna pop up that they never considered would happen before.
So, there is a need for some more training, on-going training, maybe, or at least some form of compliance check, or supervision, you could say, for businesses that have been operating for a year, or the like. I mean, I just saw a proposal for someone who’s start-up, and I gotta admit, the idea was just on the left field, he’s already spent 2.5 million dollars on it, and it’s like oh my God, is no one sort of sat there and gave him a bit of a shark’s tank, … test, and said, “Really? You need to actually wake-up and realize.” There has to be a very clear delivery of a solution, and not only just an idea, but an ability to actually make it grow and deal with it as it grows over time.
I think the other problem being, which is, in a way, a little bit being fixed is the failure for equity investors to participate in small business . . . the biggest problem in Australia I think is that people have to learn how to get more money, they can’t actually, most of them are not skilled enough to know how to raise equity.
If you look at our business, we haven’t borrowed anything. We’ve got equity partners, and every time we need funds, we’ve raised equity, and we’ve done that on the basis that we don’t, for the first few years, we didn’t think want to be levered. We didn’t want to have that debt hanging over our head, and it’s still the case, and it’s very much where it’s by comparable notes, or whether it’s by some other form, it’s very much that there is a need for the business to be able to grow, and by turning around and just going out and getting loans, ’cause you think that’s the only solution, isn’t the best solution.
Marketlend Academy: The Lending Challenge For Small to Medium Enterprises
Why a digital marketplace for SME lending? The simple answer is a need among SMEs for more access to capital and investment opportunities. Here as part of our Marketlend SME Academy, Marketlend Founder and CEO Leo Tyndall talks about how the search for money was a source of pain for many in the SME landscape when he began. (Prefer to read, not watch? The transcript is below.)
Q: What was the pain that you were seeing in the market [when it came to SME lending]?
A: What really was obvious was there was a number of things: firstly, that the size of transactions that was sort of sitting between the businesses turning over one to 20 million, they weren’t really getting the proper attention from the banks. The banks weren’t giving those SME’s and their sort number one attention. What also was seen is that suppliers would give credit that suppliers would have a vested interest in when they gave credit so that they would change the credit terms quite regularly, and then at the same time, they wouldn’t actually give them credit for different suppliers. They would only give them credit for one supplier.
So then, what we saw also, was that the investors would complain they weren’t getting yields. So they would go into major investment schemes, other type of investments, find that their managers were charging them one to 2%, find that there was a fee here, and a fee there, and by the time that they looked at their net return, they were lucky to get much more than what the banks were doing, and the banks were actually offering them, as they do now, one to 2% yield and yet they’re landing on the other side of 12, 14, even up to 20%.
So the SME’s, when we first started, which was in December 2014, what we found is the SME’s at that time didn’t have a lot of options. So there wasn’t that many SME lenders out there either, and they were very, very expensive. There has been a lot more SME vendors pop up, close to about 60. However, their rates have been still quite high, so the risk is not being matched against the actual, essentially, profile of the borrowing, not getting any interest rate for risk. So what you’ll find is a business that’s turning over, say one to ten million, which should be a fairly positive risk, is turning out to be paying quite high rates.
Marketlend Academy: What Three Things do SMEs Need to Know about Lending?
Marketlend founder and CEO Leo Tyndall wants every SME to know three basic things before they take out a loan. Click on the video below or read the transcript to get a closer look at better lending.
Q: What three things do you think SME needs to know about lending?
A: Well, they need to know what the true cost is of their facilities. So, first thing they need to know is when they get pummelled with all these different plethora of lenders, they need to be very clear about what is getting, essentially, what is the true rates. The other thing that they need to know about is what is the benefit in the long term.
One of the difficulties with a lot of SME’s is that they’re not looking what the long-term advantage is, they’re just looking at the short term, and then the last thing would be is this that is this lending facility something that I could actually put as my balance sheet management tool going forward in the long term. Is it something that when I go public or do a trade sale, I’ll be able to say, “Look, yes, I’ve got this facility, and that facility allows me to buy stock every 90 days, and I’ll pay it back, and I’ve got a good cash flow from it.”
It’s those type of things. whereas, if they’ve got [a certain type of] loan, generally, most investors will look at it adversely and go, “Well, this looks very risky, why are you drawing down these urgent loans?”
Cause it’s a drain on their cash flow: the biggest problem is the drain on the cash flow itself. (Certain types of) loans have a place, and all the other loans have a place, but if their cash flow is having a direct debit [inaudible 00:13:17] on a daily or weekly basis, and it’s P and I, it’s essentially a significant drain on their cash flow, which causes them to have difficulties repaying other people.
So, it’s got to be very much a case that if someone’s got a million dollar turnover, they go and get a 50,000 dollar loan, and they look at their cash flow and go, “Yup, look, I can afford that.” Well, then fine. But not someone who’s turning over 150,000 and go and gets a 50K loan, and has to pay it back in six to 12 months, their cash flow isn’t going to sustain it.
P2P lending continues to grow in Europe
P2P-Banking.com has released its lending volumes for May 2017, and has measured a major increase in the volumes of almost all P2P market places compared to last year’s May. This has come to an approximate $500 million dollars in added volume. Globally, Morgan Stanley forecasts lending volumes of up to US$290 billion dollars by 2020.
We’ve seen a major increase in Chinese P2P lenders, with 2612 lenders coming out of China and turning over approximately $US$18 billion dollars in loans a month. Though, harsh central bank regulations are seeing a threat to this volume as they continue to increase regulations on P2P lending.
Achieving global recognition
Over the last half a decade, we’ve seen P2P lending go from a niche to a reasonable method of investing. This sort of recognition is what P2P lending needs to reach the next level and become wide-spread amongst retail investors as well.
A few years ago, P2P lending was considered to be a fad that would be extinguished very quickly due to its high risks for investors. Though we’ve seen some issues with Lending Club in the U.S., specifically related to some shady loans covered by Bloomberg in 2016.
P2P lending critics are quick to bring up Lending Club’s faults and extrapolate them to reflect the entirety of the P2P lending markets. But, we have to remember that there are a few bad eggs in any market. Conventional banking has led to some of the worst financial crises in history or do we just pretend to ignore sub-prime loans?
It’s important to be aware of the flaws in a financial institution but shady deals and risky ventures done in a few companies do not reflect the entirety of that financial market. P2P lending has the opportunity to excel and grow to huge levels as it garners more and more recognition in the financial sector.
We’re excited to be a part of this growth and we hope you have a look at MarketLend as a means of lending.
A decade of deficits: Australia’s AAA rating on the rocks
In the last federal election, Australia’s AAA rating was a hot topic that was brought up by both sides of the political spectrum. Australia’s S&P rating was threatened last year, with many predicting it to fall to AA+ in 2017 or 2018. Over the last week, we’ve seen the AAA rating re-affirmed by the S&P but placed at a high-risk.
Citing a decade of deficits, the S&P has highlighted the deterioration of Australia’s financial position. If the Government isn’t able to return to surplus by the early 2020s, it will most likely lose its AAA rating and be demoted to AA+. Most investors don’t solely rely on these rating agencies when making investment decisions. S&P have made mistakes before, particularly a $2 trillion arithmetic error when reviewing the US financial position.
Though, S&P ratings almost have a larger impact on public perception of the economy. A demotion in S&P ratings will show that Australia isn’t so immune from a recession or default. We’ve avoided recession for almost three decades, and we have a generation that has never experienced the ferocity of a major recession.
In addition to this, the average Australian is stuck into a lot of debt. Household debt and mortgage debt are some of the highest in the world and housing prices have seemed to be inflated for the last decade and a half. If there is a major shift in our economic climate and many lose their jobs, these high mortgages may come back to haunt them.
This gives the S&P ratings a lot of leverage over the average Australian. Any sign of a recession or potential unemployment will see Australians quickly saving their money. This may be a self-fulfilling prophecy as we will see a subsequent decline in spending and potential unemployment as a result.
The Government really has to hit the next budget out the park, improve our financial position in the world, and ensure that we don’t see a major loss in employment. These things combined may pull us back into good standing. Australia is feeling exposed right now, and high home prices and mortgages are making the average Australian feel queasy too.
What is Responsible SME lending – Altfi Conference 2017 panel discussion
RBA rate cut to historic lows to boost growth, is that really going to happen?
The RBA has cut the interest rate by 25 basis points from 1.75% to a historic low of 1.5% in an effort to stimulate the economy, specifically boosting growth and reducing the Australian dollar. Concerns have been raised about the subsequent effect that this will have adverse effects on the property markets. By decreasing the interest rates, many are worried that this may result in a further inflation within the property market.
RBA governor Glenn Stevens has addressed the concerns that surround the Australian property market, stating that the banks themselves will be cautious in lending within the property market and hence solving this issue themselves. However, it seems rather callous for the RBA to leave the fate of the Australian property market and by extension, the Australian economy in the hands of four private institutions. Banks are allowed to have market power and they are allowed to make lawful decisions; they do not possess the same mandate to protect the Australian economy as the Government and the RBA.
Inflation is substantially lower than the current 2-3% target in addition to this, low growth figures announced within the retail market places foreshadows another cut in the near future. The pressure is rising within the Australian economy. If the RBA was to drop interest rates again, their collars might be a bit tighter. Without the buffer room, they could fall victim in the hands of a liquidity trap. In addition to this, if Donald Trump was to win the U.S. election, it is forecasted that a major sell of U.S. dollars may occur. This would drop the rates of the $USD and subsequently push the $AUD even higher. A higher dollar means less exports, and a decrease in competitiveness within the global economy.
Even more alarming is the fact that the banks have not truly passed on the interest rate cut. The Big four banks have passed on about half of the cuts, keeping the rest for themselves. The stimulatory effects of the cut will not be fully realized as a result of this, and it’s concerning as this has been the trend over the last decade when considering interest rate cuts. The banks will have to explain their decisions in-front of the House Economics Committee. Unfortunately, this committee isn’t one that can enforce the law. It is the ACCC that must investigate whether there is a violation of market power.
We’ve seen this happen before. In 2012, the RBA held the rate at 4.25% of the cash rate, however the Big Four banks acted independently and increased the interest rate for the benefit of their own share-holders. With such a small cluster of banks deciding the Australian economy, it is worrying to think about the power that this financial oligopoly has. The Government seems to be extremely lenient on the banks and the statements made by Glenn Stevens support this as they consistently put the ball in their playing field.