Category Archives: Entrepreneur News
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.
‘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.
Google Tax
Scott Morrison introduced the ‘Google Tax’ or the less exciting Diverted Profits tax on the 29th 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.
The proposal states a $200M increase in the Australian budget if tax evasion by multi-nationals is adequately prevented and the money is redirected back into Australia. As a Government that was cracked down on about this very issue, it is refreshing to see some action taken on it. It will be interesting where support lies on this tax, and how it will affect multi-nationals entering into Australia.Will it stop multi-nationals from setting up shop in Australia? If this passes, we’ll have one of the strictest laws on this issue in the world. Google has moved billions of dollars to Bermuda, it’s under pressure from Indonesia to pay its taxes, and it’s proud of how the company avoids taxes.Whether this is okay or not depends on what you believe.
Irish tax law is the a major way to avoid corporate tax liability, using payments between related entities in corporate structures to move payments across from a higher-tax country to one with lower jurisdiction.
Composite lending, marketplace lending hybrid
With alternative lending becoming a more prominent part of modern business, it is important to stay abreast of changes in the industry. Composite lending is a mixture of different models and brings with it a great deal of benefits from marketplace lending.
Composite lending as a model combines two common models: balance sheet lending and marketplace lending. In effect, it brings in the benefits of both to the same model. Balance sheet lenders focus on specializing their loans, using shorter term high rate loans or merchant cash advances. Generally, these types of loans focus on profitability over a short period of time. Alternative lending lowers the risk of investments by transferring it to investors, but drops the overall interest rate of the loan. Composite lending as a model hopes to bring these both together.
By combining the parts of the balance sheet model with marketplace lending, the composite model creates a bridge between the two. The model retains part of the portfolio on the balance sheet funded by the company’s capital. This is done while using marketplace lending to obtain outside investors to finance the rest. These two models, when brought together, can offset the risk while maximising returns quickly.
If you ask a composite lender why it is a better choice, they will tell you that moving forward from a balance sheet to this model of composite lending helps every rung of the ladder. The initial company sees a high return on their portfolio, while still collecting fees from the newly originated portfolio. As a result of the newly originated loans being sold to investors, the lender doesn’t have as much risk associated with the portfolio too. This brings great benefits, and it allows for massive scalability with marketplace lending.
Bringing in composite lending allows for a level of flexibility that businesses have never experienced. It is easier to add new products to portfolios, as well as enter into new avenues and markets using the portfolio. This can make your portfolio look healthier and ultimately, appeal to new investors. Even better, by using the balance sheet statistics as its measure of success, balance sheet lenders can justify the worth of the portfolio to new investors.
This composite model of lending creates a plethora of benefits from both marketplace lending and balance sheet lending. This combination helps with scalability as well as lowering the associated risk within the portfolio. As the two models work together, composite lending creates a path to squeeze the best out of both approaches. However, regulators and detractors are not so positive about this type of lending.
Here are some results composite lending can lead to:
- a) Selective “cherry picking” loan exposures offered to investors,
- b) Delivering higher risk loans at lower margins to investors;
- c) A margin squeeze on investors, e.g. giving them the loans with lower margins
- d) The balance sheet lender taking the more profitable margin loans
- e) A lack of transparency between investors and composite lender as to what loans are funded by the lender.
- f) Complexity in the advent of a liquidation where a borrower may have loans on the balance sheet and in the marketplace.
As a result, investors must be careful when considering an investment in a composite lending platform; they need to understand the incentives for the lender to keep the loans on the balance sheet, when to sell to investors, what is the selection process, how conflict is managed, the reporting structure, and realization process.
As is always the case, an investor needs to perform his due diligence when investing. The more complex the structure or the more greater control by the lender, leaves an investor vulnerable to unscrupulous participants in the composite lending market.
Marketlend does not support or discourage composite lending. Furthermore, Marketlend does not run a composite model at this time. Marketlend does invest in every loan on its platform.
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.