Category Archives: Testimonials
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.
Marketlend was interviewed recently by Canstar to discuss its business and what makes it different in peer to peer lending in Australia industry
Peer to Peer (P2P) lending, sometimes called Marketplace Lending, has been around in Australia for several years, but has only just started to take off. Marketlend, a wholly owned subsidiary of Tyndall Capital Pty Ltd, is one of the newer players to market and we caught up with CEO Leo Tyndall for a quick Q&A. See the article at here .
Q: Why can P2P, or Market Lending, provide a better solution to the borrower?
A: Simply put it gives the borrower direct access to investors. In response to your question:
- It diversifies the lender base for the borrower enabling them to be able to reduce their reliance on the risk appetite of a lender;
- It offers the borrowers the ability to build their own investor base for future bond or equity offerings;
- It gives borrowers flexibility in the terms of their loan;
- It provides the ability to the borrower to offer security that is not centralized around property real estate;
- In the case of Marketlend there is flexibility to the borrower in the type of product it can obtain, either line of credit, debt finance or inventory finance;
- It removes a lot of the additional transaction costs by enabling the borrower to bypass the middlemen and go to the capital markets investors to get money and
- It enables the borrower to get lenders to understand its businesss.
Q: Why can it provide a better solution for lenders?
A: For lenders, it offers:
- High returns;
- Direct access to the borrower;
- A structured environment that gives them analysis of credit, loan management and collection facilities;
- First loss protection in the form of insurance or cash collateral support;
- Real time reporting and
- Transparency.
Q: Does it provide access to people who otherwise could not get a loan?
A: Marketlend will not lend to borrowers who are unable to get credit elsewhere. Marketlend and the investor can see how many queries a borrower has made, and it is not a lender of last resort. As Marketlend invests with you, it will not offer a listing on the marketplace that it is uncomfortable with the risk profile for. Furthermore it will not list or invest in startups or borrowers with defaults.
A: Can borrowers expect better priced loans than through traditional lenders?
Q: When a comparison is made for business loans not secured against property real estate, trade credit or debtor invoicing, it is definitely cheaper, varying between 4-8% in some cases.
Q: How do you manage the investment risk for lenders?
A: Other than the fact that investing in a term deposit has the backing of a rated bank, with insurance and cash collateralization, we would argue that the only increase in risk is the infancy of the industry and lower performance history, to date we have had all loans paid on time and no defaults.
Q: What is the approval process for a loan? How long does it take? Is it faster than traditional lenders?
A: Approval process is as follows:
- Borrower enters his details through a website application form on marketlend.com.au;
- After a 10 page completion, he either electronically signs his application or prints his application and returns the signed application back to Marketlend;
- Our credit officers are notified of the completed application, they will assess its merits, and determine whether to forward it assessment through the grading model or reject;
- Prior to grading, the application, the financials will be assessed by chartered accounts, and a report provided to assist in the grading model;
- The application is then put through a grading model, which is an automated model that takes approximately 65 factors into account to give a result as to the likelihood of the repayment of principal and all interest to the lender;
- After the result, the borrower is contacted to advise his grade, expected rate of interest and a commentary is prepared based an interview with the borrower about his business
- A listing is then put on the marketplace, where investors can bid on the loan
- This process usually takes around 12 hours, and as it is small business lending, I am told by brokers that this is quite quick and faster than the banks.
A: What risk profile of investor, in your opinion, is suited to P2P lending?
Q: Investors suited to the platform are investors seeking strong returns, with transparency. The investor must understand that this is not a bank, and that the industry is still young. We find we get investors from all areas, and it is the fact that they are disclosed all the facts that they can make their own assessment and chose different risk.
The Greek Economic Crisis and Peer to Peer Lending
Commentary
The Greek Economic Crisis:
Greece has experienced a tremendous amount of attention, after the strenuous and frustrating months of negotiation between creditors and the Greek Government have come to a crescendo.
Creditors had given Greece another opportunity for a bailout, under the provision that strict austerity must be practiced. Alternatively, Greece could vote ‘no’ to these provisions, and default on these loans.
The Greek Government put its decision to a referendum. One side, led by the opposition leader, was ‘Yes’, we will adopt austerity and accept the bail-out, and on the other, campaigned heavily by the Greek Prime Minister, was ‘no’, which risks default and exit from the euro-zone.
From the moment that the votes were rallied, and a resounding majority voted ‘no’, Greece had stepped into uncharted, yet dangerous waters. It has an opportunity to create history, and hold its own destiny in its hands, a dangerous, yet empowering situation.
Businesses and institutions are struggling to manage, as imports become increasingly harder to obtain, the entire country is strapped for cash, and more importantly the political effects of default will soon resonate throughout the euro-zone, potentially leading to Greek exit. This has led to shockwaves in the world economy, as the Australian dollar fell to a six-year low, and almost all major economies were negatively affected.
Investors have a big question mark over their heads. What does this mean for them? The Greek Economic crisis highlights the importance of independence and information in investing. Investors should know where their money is going, and it is very easy to lose sight of this idea when you are investing.
Peer to peer lending platforms, like MarketLend, and other P2P lending hubs show the importance of this idea. Banks, Governments and Politicians are not always secure, typically not transparent and it is the unknown that seems to surprise us.
Statements we are hearing from super fund participants are “I didn’t know my fund was at risk, or took risks in countries where I would not invest”. To a lot of those funds, the answer is simply it is all interconnected. But how do you know?”
Investing and transparency should go hand in hand, so that you can invest knowing the risks. It’s in situations like these, it comes to be known that directly investing is favourable because you can know your risk. Peer to peer lending offers such investments.
Trust Documents executed by Trustee, Marketlend, Tyndall Capital and Jardine Lloyd Thompson
In a first for the peer to peer industry, Marketlend from inception is operating a securitisation trust structure to offer investors the most secure and protected funding opportunity available.
Master Trust Deed, Security Trust Deed, Sale and Origination Deed, and Back Up Servicer Deed were executed on 24 December 2014.
AET, a wholly owned subsidiary of IOOF, who manages approx. 123 Billion of wealth funds in Australia was appointed the Trustee, and Security Trustee.
Jardine Lloyd Thompson, listed on the UK stock exchange will perform the role of back up servicer.
“We have structured our lending platform with a solid foundation, that will be built to last. From the mom and dad investor to the large financial institutional investors, all investors are protected and purchase a secured bond where the underlying asset is a loan in the trust or part thereof if the investor wishes. These notes will have the traditional trading aspects to them, and whilst liquidity take a while to build, the notes are tradable instruments in the capital markets.” Leo Tyndall, Founder and CEO.
An interview with Marketlend CEO – Leo Tyndall
Interview with Marketlend CEO – Click here to listen
Marketlend is a new Australian lending platform founded and led by Leo Tyndall.
Launched in the same week that the Financial System Inquiry (FSI) of Australia released its “blueprint” for the Australian financial system for the next ten years, this new platform shows how innovation in financial products is global.
We were lucky enough to get a chance to speak to Leo in the week of his launch.
Leo provides us with an interesting insight as to how Marketlend is a necessary addition to the Australian business finance marketplace and what makes its offer so distinctive.
The FSI report is generally encouraging towards crowdfunding and new and novel approaches to finance and we can be sure that where Leo’s team lead others will certainly follow.
You can stream the interview from here, our Podbean account or download it for later listening