Category Archives: Community News

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.

‘Too important to be ignored’ – The Reserve Bank of India leads up to releasing P2P lending standards

India is a major developing economy and is forecasted to see massive economic growth in the next few years. It’s a country that can’t be ignored in the 21st century and may follow the steps of China if it plays its cards right. The Reserve Bank of India has recognised the importance of P2P lending in its most recent standards assessment and looks to publish them soon.

In a 2016 consultation paper, the RBI considered P2P lending benefits to be too important to be ignored. In a more broader sense, these standards look to establish a strong regulatory framework on capital, governance, business continuity, and customer interface alongside regulatory reporting.

This recognition could be the key to truly accelerating P2P lending internationally. At this stage, the biggest market for P2P lending has been in the USA. It is amazing to see the RBI recognise P2P lending. Over the next few decades, India may rival China’s economy and even the USA. We may see P2P lending alongside this acceleration of economic growth and truly grow into the 21st century.

It’s extremely important for developing countries to begin to understand P2P lending. Additionally, it’s important for their Governments to truly recognise the importance of setting regulation and recognising P2P lending as a legitimate form of finance for small businesses and individuals.

Though, it’s just as important for every business that provides P2P lending for them to grow into other areas of the world aside from the West. This can provide access to hundreds of millions of businesses across India, China and SEA that could benefit from P2P lending.

The team at MarketLend is excited to see what comes next out of the P2P lending standards from the RBI.

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.

Google Tax

Scott Morrison introduced the ‘Google Tax’ or the less exciting Diverted Profits tax on the 29^th of November this year, stating that it will ensure that tax dodging corporations will be heavily scrutinised and taxed heavier if they try and dodge their tax. The tax will allow the ATO to broaden their scope and ensure that these large multi-nationals can properly be punished.This is something that a lot of Australians are frustrated with, especially SME owners that pay a 30% corporations tax. Running a successful business shouldn’t give you immunity from taxation, and that seems to be the case with the status quo at the moment.

 

We see a lot of successful multi-nationals enter Australia, crowd out Australian businesses and divert their income overseas to avoid any tax. You could argue that they are giving Australians jobs, sure, you aren’t wrong on that front. However, there is a major amount of money that we, as Australians, are putting into their companies.

 

Just because you can afford the best accountants in the world and amazing tax lawyers should not preclude you from paying tax. I think this is a bi-partisan issues that should be agreed on by both parties.

 

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.

Composite lending, marketplace lending hybrid

The Danger of “Status Quo”, Credit Card Surcharges, and Interest Rate gouging

Why it is important to stop anti-competitive behaviour in its tracks?

Humans are strange; we are so very opposed to change before it happens and shortly after it happens, but after some time has passed, we quickly adapt. We forget why we are angry, and accept it. This is dangerous behaviour.

Banks, like any institution, hold a lot of clout, politically and financially. An oligarch or four banks governs Australia’s finance, and Australians have grown to accept their behaviour. The banks tell us their questionable behaviour is for “the minimization of risk, and the stability of the sector”, and we accept that. Similarly, many merchants have been abusing their ability to charge credit card surcharges, gouging consumers who choose to use credit.
Over the last few months, the Government began to crack down on this behaviour. So have the people. We realize the ridiculousness of these status quos. Most recently, Westpac has placed an increase of 20 basis points onto their consumer mortgage accounts. This was implemented after the RBA made several interest rate cuts in the last year; the most recent being an interest rate cut in May by 25 basis points, down to 2%. In the same vein, Government regulators have ordered major banks to increase their capital relative to loans; a method to insure that the banks do not collapse as a result of a housing bust.
Instead of lowering their profits, they have passed the costs of this regulation onto the consumer. I think I speak for most Australians when I say I find this ridiculous.

In contrast to many other OECD countries, Australia is governed by these banking oligarchs. They gobbled up our smaller banks after the GFC and we were left with a sector that lacks any sort of competition. The disparity between term deposit interest payments and mortgage interest payments is shocking and unfair. Lack of competition and complete market dominance almost always leads to inefficient solutions. These are solutions where consumers feel helpless, but have to rely on them. I think this is changing, at least I’d like to hope so.

On a positive note, it doesn’t have to be the businesses that change. In this circumstance, I think the technology is changing. Peer to Peer lending or marketplace lending as it is also known globally is allowing us to access a whole range of financial instruments that weren’t available before, and prices that were not available before.

We’re able to acquire trade credit, debtor financing, personal loans, car loans and business loans on reasonable terms. We’re able to choose from a range of different offers from competing platforms, and choose the most competitive option.

P2P lending is disruptive, and it’s here to stay.

The Falling Australian Dollar

When many people think of the idea of a “weaker” Australian dollar, they seem to panic. It’s spread all over the media and positioned as if it was a recession or natural disaster. For investors, the issue is working out the consequences of a falling Australian dollar and the benefits. But first, let’s find the root of the falling Australian dollar, and work upward from there.

 

So, what are some of the possible reasons for a falling Aussie dollar? It isn’t a straightforward answer. It is a sum of certain things happening in the global macro economy over the last few years. The first possible reason is one to do with monetary policy. Many large nations across the globe took part in aggressive quantitative easing over the last 6-7 years. When we increase the volume of a currency, the relative buying power or value of the Australian dollar increases.

 

In addition to this, as growth slows in China, we see a contraction in demand within the commodities market; leading to a plummet in the price of iron ore.

 

A weak Australian dollar isn’t only bad news. The Australian dollar’s strength over the last few years has resulted in a loss of competitiveness within the global economy. A weak dollar should give back some of our much needed competitiveness and contribute to an increase in the volume of net exports. Sectors like tourism, international education, and foreign investment will experience a boost, whilst many of our domestic importers will feel their belts tighten and prices increase.

 

So what’s the market like for an investor? Commodities are not in the greatest place right now, they are sliding down and don’t look to be picking up in the next few weeks. You’ll probably see an increase in demand for domestic goods, instead of buying online from overseas. Companies that rely on exporting overseas and catering to Australian consumers as well are the most attractive investments in these times. The easiest way to do that is through P2P (marketplace) lending, where the borrower is a private company, it’s hard to invest into private companies without connections, and certain Australian marketplace lenders offer investments into lucrative corporate opportunities.

 

In conclusion, a falling dollar isn’t a bad thing at all. It’s probably good news for us right now; there are much bigger fish to fry within the Australian economy. Most diversified portfolios will be able to sustain themselves through this period of economic down turn.

 

Leo Tyndall, CEO of Marketlend,  a P2P lender, Marketlend at marketlend.com.au.

This is not an advice, and any investor should seek independent financial advice prior to investing.