With economic growth still weak across developed markets and almost entirely consumption-driven, governments and regulators have been searching for ways to encourage more lending and provision of finance to small and medium-size enterprises as the main drivers of employment.
Pressed by policymakers to show willing, many potential providers of finance now proclaim their eagerness to lend, but for reasons that remain hard to fathom, SMEs do not find securing funding easy.
Finpoint is a technologically straightforward company with what could prove to be a very useful idea: to engage high-quality professional advisers, including from PwC as well as from other professional advisory firms, to help SMEs compile the documents needed to support an application for credit. Those accountants and professional advisers review the documents and help companies knock them into shape. Finpoint provides a single platform for anonymised borrowers to present these documents just once for viewing by scores of potential lenders – most of which the borrower will have no relationship with.
Finally, Finpoint allows borrowers to approve access to selected interested potential lenders to more data and to engage directly over potential terms.
Rainer Plentl, a banker who began his career at Citi in Buenos Aires, ran corporate finance for Morgan Grenfell in Argentina and worked in Paris and London for CIBC, is chief executive. Finpoint grew out of a platform designed to help German SMEs apply for state funding grants. In Germany, only banks are allowed to lend. In the UK, where Finpoint is now rolling out, a bewildering array of non-bank lenders compete with high-street and challenger banks.
Plentl says: “We hope in five years’ time to have up to 100,000 SMEs registered on the platform to which lenders can then provide finance. Today, we have more than 80 lenders approved, including household-name banks, challenger banks, as well as peer-to-peer lenders and other alternative finance providers.”
Plentl says: “When you pay close attention to the small end of that very broad category of SME companies, you find that in the UK, where we are focused, while lending to medium-size companies has picked up recently, borrowing activity is going down with smaller companies. These are the companies where the founder is busy dealing with customers, making the core product or providing the core service, where there might not be a full-time CFO to deal with banks.
"And these companies find dealing with banks enormously time consuming. If they go into the high-street bank, meet the wrong person on the wrong day and get discouraged, they may assume they are not bankable. There are other providers, but they often find dealing with peer-to-peer lenders they have never heard of confusing and intimidating.”
Finpoint’s aim is to create a one-stop shop, where borrowers only have to provide documents once, advisers make sure they have included the essential details about the business, and do a common-sense check that a company with £1 million in turnover isn’t asking for a £1.5 million loan it has no hope of getting.
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It then shows the basic details, without naming the company, to a wider range of potential lenders than a company could ever find using a broker showing it to a closed network of lenders.
“The aim is to give SMEs choice when they have never had it before,” Plentl says. “And because the initial application is anonymized, it can be posted without damaging a borrower’s credit footprint or hurting its credit score. Borrowers can only go forward once lenders have indicated they are interested. That is a potential breakthrough for companies. Many small companies become permanent non-borrowers, reasoning that if one bank has turned them down, all banks will.”
GLI Finance, an umbrella group for over 20 alternative finance platforms covering products from invoice finance, trade finance, asset finance, to short-term working capital and term loans, is the core shareholder in Finpoint. But Plentl says Finpoint is agnostic as to who it matches a borrower to.
“It’s a bit early to tell which will be more aggressive lenders between challenger banks and alternative-finance providers. And we are also in discussion with mainstream banks that are not on any of the alternative-finance platforms. The most important thing, for us, is that borrowers should have choice. Because choice brings market efficiency.”
Finpoint works with local enterprise partnerships, regional authorities in the UK part of whose mission is to ease provision of finance to local companies. While it has support from PwC to work over the documents SMEs provide, Finpoint is also seeking partnerships with local mid-size accounting firms.
For now, Plentl finds that many small companies don’t appreciate the differences between short-term unsecured loans, asset finance and invoice finance.
“When we ask what form of finance they want, the answer is often: ‘No preference.’ So our starting point is to encourage a specification as to use of proceeds.” He says: “Remember that banks are closing branches, so often these companies may apply for finance online but apply for the wrong type of finance. In a box-ticking regulatory world, I have certain sympathy for banks. Many loans are turned down because borrowers have not provided evidence of affordability. But perhaps they could have provided it.”
It will be interesting to see if a firm like Finpoint can develop a price-comparison service for SMEs against standard types and maturities of financing.
“Technology is the key to bringing transparency to a market around fees and margins," says Plentl. "It is also key to changing dynamics. For example, the size of the lender or borrower you are dealing with becomes less material. This market place will change, especially I think, the role of brokers in arranging deals between borrowers and lenders. But we are not there yet.”
Finpoint has grown its lender panel fast, from 30 last summer to over 80 now, with another 25 under consideration for approval.
“The members of the lending panel will be actively managed. If they’re not engaging much, or lending much we can take them off," says Plentl. “We think maybe 125 to 130 is the optimum number. Right now we find anywhere from three to eight lenders expressing interest in each smaller application. For larger loans of £1 million or more, it’s fewer.”
The platform is free to use for borrowers and their advisers. Lenders can also sign up for free but pay a commission of between 1% and 3% on the amount of any completed transaction, varying according to the type of finance provided.