News & Analysis

Fintech startup Bigstone launches online lending marketplace to help fund SMEs

- June 14, 2016 5 MIN READ

Australian startup Bigstone has today announced the launch of its online lending marketplace, through which it will look to offer the best small business loans in the country. The startup aims to help fill the $2.4 trillion credit gap in the SME lending market by giving small businesses a better risk adjusted rate of return.

Currently we’re seeing a wave of fintech companies hit the SME market lending space to offer businesses alternative sources of funding, and for good reason: according to Bigstone 83 percent of Australian small businesses find it difficult to obtain credit and interest rates with better returns.

In Australian the credit gap market size equates to around $380 billion of debts, held by small businesses. On an annual basis that debt is estimated to be around $20 billion of bank loan debt, Bigstone sees that the real problem is there isn’t any product that sits between a real estate line of credit that sits between seven to eight percent and credit card rate products that sit at 22 percent and above.

Bigstone was created by financial heavyweights including Boyd Pederson, former partner at Boston Consulting Group, Robert Morgan, who has led IT development for Commbank and Westpac, Marcus Korff, former divisional risk head for ANZ, Liam McLagan, who has worked for financial services companies in Australia and the UK, and Inderjit Singh, who has worked at Westpac, Deloitte and TeleTech.

With over 100 years combined experience in financial services, the Bigstone team have taken lending recipes used by banks and added new sources of data and proprietary algorithms to deliver competitive small business lending rates for creditworthy small businesses.

“Having worked in senior finance roles, we saw first-hand how hard it is for small business to get funding. Owners can spend months waiting for a response only to be told that they can only get a loan with increased fees, more paperwork and more collateral. The current system doesn’t work, and after years of listening to small business concerns, we chose to create a solution,” said Pederson.

“We want to return lending to its roots by creating a community where investors come together to fund the best opportunities while also earning a great return. There is so much information available that banks simply aren’t using – Bigstone uses this data to create an honest credit assessment. We then reward borrowers for transparency; so the more information you share, the better your rate will be.”

For borrowers, Bigstone has designed a customer experience that gives them a risk-based price in a matter of three minutes. After asking a few questions, the borrower is asked to identify who they are and what their company is, which allows Bigstone to pull in real-time data and information on their company from a range of sources. Bigstone then asks them to provide additional information on their finances or to provide them with an integrated service like Xero.

Pederson said in three minutes borrowers can get a quote and in less than 30 minutes their application can be completed. Within as little as two days borrowers can have access to working capital loans between $10,000 and $250,000 of face value, which are provided for up to a year.

“We believe that what the product that we’re offering is that it’s a really fair product, and what I mean by that as a fair product is it’s simple, fast and fair. Simple in that it’s easy to understand, it’s a loan of less than one year to repay with level repayments over the life of the loan, clear and transparent pricing,” explained Pederson.

From a lender’s perspective Bigstone is all about trying to make money last as long as the lender does, and to do this the startup enables the investor to essentially be the bank. After an identification process investors can deposit money into the online marketplace and choose the business loan request that fits their risk. Investors are encouraged to invest as little or as much as they want across as many loans as they want, and consequently investors can participate in buying one whole loan or diversify their portfolio.

Another startup looking to capitalise on the SME need for funding is eBroker. Launching late last year as an online funding matching tool for SMEs, eBroker looks to provide SMEs with transparent ways of acquiring funding. Over the last two months eBroker has gone from helping just a few small businesses to now seeing over 500 come through the website.

“Short-term cash issues kill thousands of many otherwise good businesses each year, many of them startups. They ruin entrepreneurs, destroy jobs, and damage our economy,” said Simon Isaacs, founder of eBroker.

“With eBroker we’ve deployed the smart use of tech to ‘disrupt’ the negative momentum of ‘cash-flow problems’. We’re the ‘missing link’ to easy, unsecured finance that Australia’s two million small to medium businesses have been crying out for.”

Isaacs estimates that 40 percent of SMEs looking for finance do not satisfy the criteria of the big banks, which leaves around one million businesses unable to access the finance they require to take launch and expand.

eBroker is 100 percent independent and is not affiliated with any lenders, rather it provides a completely transparent space to connect borrowers to the the right lenders. Currently eBroker has 47 lenders on site that can be filtered through a set of criteria the borrower fills out.

“Our job as the eBroker is to match up the business to the most appropriate lender and then it’s a matter of the business to communicate with the lenders directly that they choose to talk with, and then the conditions of the loan and the loan repayment are done between the small business and the lender and eBroker is not involved in that process,” explained Isaacs.

There has been a steady increase in loans under $500,000 since 2010, and with small businesses responsible for 70 percent employment in Australia it is crucial that they attain the right funds to facilitate their growth.

With the steady increase of small business loans comes a sharp increase in fintech services. Today Westpac’s VC fund Reinventure announced its second round of investment in fintech startup Valiant Finance. The startup provides SMEs with equipment finance, unsecured loans, debtor finance and working capital from a list of 26 alternative lenders.

As more companies enter the space there will be more challenges on fintechs to educate SMEs on the levels of finance they offer and how quickly they can offer it. Right now it’s all about speed, and while banks are stuck with trying to educate small businesses on how to fit their criteria, fintechs are ramping up their offerings and challenging one another on who can provide the best working capital and risk adjustment rates.

For four years the team at Bigstone has been working towards funding $4 million to SMEs and now through relationship building and marketing they are on track to rapidly grow the company’s portfolio.

“We’ve spent a lot of time thinking about building up a platform that can scale that very rapidly, not just here in Australia, but into other geographies,” said Pederson.

The key thing for any startup working in the fintech space is building trust and that trust needs to be built over a period of time, which is why Bigstone expects to grow slowly locally to prove its risk model before expanding fast internationally.

“We expect to spend most of this year actually focused on growing in Australia and starting to put down the foundations for growing into other geographies,” said Pederson.

“Over the next 30 years, Asia-Pacific region will grow very rapidly and come to dominate world trade and the growth of the small business segment will happen fastest and largest in Southeast Asia. So our intent is actually to focus on growing in South East Asia and that may mean adjacencies to other countries that are near to us.”

Image: Bigstone Team. Source: Supplied.