With combined experience in investment banking, risk management and credit modelling, Melbourne-based entrepreneurs Aris Allegos and Andrew Watt decided embark on a startup-style intervention to bridge what they felt was funding gap for Australian SMEs. These lads are the brains behind an infant startup Moula, which functions as an online funding platform for small businesses to access critical short-term capital.
What’s interesting about Moula is the way it approves applications. The startup is able approve loans of up to $20,000 “within minutes” by processing the applicant’s ecommerce data. From sources like eBay and PayPal, Moula’s technology has the ability to analyse real-time sales data and performance history, and determine whether the applicant can repay the loan. There is no need for providing any paperwork of waiting for long periods of time for an outcome that could still be ‘no’.
According to an RFI Intelligence Survey (2011), almost 50 percent of SMEs that apply for traditional credit are rejected. The issue is more prominent with online merchants, where a lack of physical presence and limited track record are the two main reasons preventing them from obtaining funds.
Ecommerce is a temporary sole focus for the startup; it intends to service all SMEs in Australia that may need instant access to capital that is otherwise unavailable or will take a significant amount time to secure via traditional means.
”We want the process of getting critical short term funding to be easy, automated and accessible to every small business in Australia,” said Allegos, who is also the Managing Director of MP Capital Partners and Non-Executive Director at Tiger Pistol.
“To grow and build their businesses, owners need a fast and simple alternative to traditional lending, whether to buy inventory, invest in new equipment or spend on marketing. The challenge is getting access to that capital in a timely manner, which can often drive them to credit cards and other high cost alternatives.”
According to co-founder Watt, Moula aims to be completely transparent; he says there are no hidden fees or penalties for early repayment, just an interest rate applied against the borrower’s outstanding balance.
On the ‘Pricing’ section of the site, an interested applicant can select the amount of money they want to borrow and instantly find out how much interest they would have to pay in total, depending on which fortnightly repayment option they choose.
For instance, if an applicant borrows $4,000, they would be paying a total interest of just under $286. If they borrow the full $20,000, their total interest comes to just under $1,428.
Moula has been lending to eBay merchants since May this year, across Victoria, NSW and Queensland.
Interestingly, PayPal launched Working Capital in Australia today, which is very similar in principle to Moula. Like Moula, PayPal Working Capital is a small business loan product allowing SMBs fast access to funds via their PayPal account. Working Capital uses a business’ transaction history and performance to determine lending eligibility before allowing applicable SMBs to choose the right capital solution to meet their needs.
Through Working Capital, SMB owners can borrow up to 8 percent of their yearly PayPal transactions. Repayment amounts are decided by the SMB owner, and when they make a sale, their selected repayments are automatically debited from every transaction their business receives. Businesses are charged a once-off fee, determined upfront, and based on the amount borrowed.
Kareem Al-Bassam, PayPal Director of Customer Experience and Solutions, said PayPal chose Australia as one of the first markets after the US to launch Working Capital due to SMB demand for a wider choice of financing options.
He added that PayPal’s technology platform and its merchant relationships generate rich data that can be analysed in real time to grant loan applications. What Moula’s technology is able to do is retrieve that data from PayPal and analyse it accordingly.
Both companies have echoed the same sentiments in their marketing initiatives.
“Working Capital is ideal for small-to-medium-sized business owners who need fast, simple and flexible solutions to fund activities, like staffing up ahead of seasonal demand or buying additional inventory to meet orders,” said Al-Bassam.
The application and approval process of PayPal’s Working Capital also takes “minutes”. PayPal merchants who have had an account for at least 12 months can quickly determine if they are eligible for a loan, and the merchant chooses how much they wish to borrow – up to 8 percent of their annual PayPal sales – and what percentage of each PayPal-facilitated transaction will be allocated to repay the loan. The loan amount is then deposited into the merchant’s PayPal account.
PayPal Working Capital claims to have no hidden charges or penalties for late payment or early settlement of the full loan. The borrowed amount is repaid automatically by PayPal debiting the selected repayment percentage from PayPal transactions.
Based on the wording both companies have used to market the product, it’s hard to differentiate which is a better option. Aside from the fact that PayPal Working Capital is solely for PayPal users, the difference is essentially in the loan amount. With Moula, businesses can borrow up to AUD$20,000, and with PayPal, it’s up to 8 percent of their annual revenue as determined by their PayPal transactions. This percentage can mean less than $20,000 or significantly more than $20,000 depending on the many circumstances (like growth rate) of the business.
It is unclear how the once-off fee is determined. But based on the introductory promotion video, an $8,000 loan has fixed fee of $445 (5.56 percent interest). And according to what Al-Bassam said, the repayments are automatic and only start when the business makes money. With Moula, repayments don’t necessarily depend on whether the business is making money or is at a standstill, though there are flexible options.
So what a business chooses essentially comes down to convenience and loan amount (relative to revenue).
Until the end of the year, PayPal Working Capital will only be available to a limited number of PayPal merchant partners. A broader roll out is expected in 2015.
Image: Aris Allegos. Photo Credit: Patrick Scala/Fairfax Media via Getty Images.