SMALLER enterprises with a lack of track record have traditionally been ignored by big banks due to the perceived risk. With advancements in technology, a world of possibility has opened up when it comes to alternative financing. New ways of credit assessment using data allow alternative lenders to plug the gap, to help small and medium-sized enterprises (SMEs) that fall between the cracks get the financing they need. But with the ongoing Covid-19 pandemic, these lenders are put to the test as the cracks widen, and as SMEs struggle to keep the lights on. The upcoming digital banks may also eat their lunch as they target the under-served small business segment. Three SME lenders tell The Business Times how they intend to compete, what they are doing to step up their game, and how they are bracing for the downturn that lies ahead.
GOLDBELL FINANCIAL SERVICES
VEHICLE leasing heavyweight Goldbell Group may have more than four decades of history, but its financial solutions are anything but traditional.
Its financing arm Goldbell Financial Services, led by third-generation business leader and former JPMorgan banker Alex Chua, seeks to shake up how SME financing is done through innovation in debt structure and technology.
“We give customers a different approach to borrowing money,” Mr Chua tells BT.
Its latest initiative, known as Polaris, is a launchpad for businesses to work with Goldbell to construct scalable and growth-focused debt structures, collaborating to gain additional revenue streams.
In essence, Goldbell does not just simply lend money, but also tailors financing solutions customised for each SME, and provides resources and networks to help them grow.
More focused approach
The idea behind it came more than two years ago, but Polaris was only officially launched early this year as a more focused approach to support SMEs.
One such SME that Goldbell has brought on board Polaris is buy-now pay-later business Rely, an online payments platform that allows participating retailers to offer customers the ability to split their purchase into interest-free payments.
In this case, Goldbell funds all of Rely’s transactions through a scalable joint venture funding structure. Goldbell’s backing ensures that Rely will have access to sustained funding sources, enabling the startup to focus on acquiring more merchants and consumers. In its next stage of development, Goldbell is looking at providing financing solutions to Rely’s merchants.
The amount Goldbell pumped into each partnership ranges between S$300,000 and S$5 million so far, but the amount is flexible, says Mr Chua.
Goldbell evaluates the companies it partners with differently from the banks. Businesses need not be profitable and can be as young as six months. “The reason why SMEs are not covered in Singapore is not because of risk, but because of the cost of acquisition and the costs of dealing with an SME because a bank structure is quite rigid,” he notes.
Mr Chua likens it to an “extremely small” goal post, where only SMEs that can fit particular criteria get access to loans. Often, they must be profitable and be in operation for at least three years. “But for us, we try to look at the future of the company,” he adds.
Among the criteria that Goldbell prioritises includes the mindset of founders. “A lot of these founders are too stuck on running the day-to-day operations and cannot look at doing something a bit differently,” says Mr Chua. Companies they work with must also be digital in nature, as Goldbell watches for data on transactions, he adds. These companies should also be channels for them to lend, lowering acquisition costs for Goldbell.
For instance, another SME that is on the Polaris network is food-ordering platform Oddle. Goldbell partnered Oddle to co-design a Merchant Cash Advance Programme that allows Oddle’s merchant partners to gain quick access to capital within 48 hours. This is done by leveraging on sales data from Oddle’s platform to quickly perform credit assessments.
To date, there have been zero non-performing loans (NPLs) under Polaris. For Goldbell Financial Services, which started in 2015, the NPL rate is less than 0.15 per cent. It has disbursed over S$906 million as of Oct 31, 2020 since its financing arm started five years ago.
Polaris is not the only option for SMEs that turn to Goldbell for financing. It was approved in May to provide SME financing through the Enterprise Financing Scheme’s Temporary Bridging Loan, where the government shares 90 per cent of the risk.
Even as Goldbell’s loans are more costly compared with the traditional banks, SMEs sometimes prefer to turn to them because of less friction involved, says Tan Chun Hao, head of strategic partnerships and projects, Goldbell Financial Services. For instance, Goldbell’s government-backed Temporary Bridging Loan comes with an interest of 5 per cent, while local banks can charge below 3 per cent. However, Goldbell is able to disburse funds as quickly as three days after the paperwork is complete. Banks can take up to months, especially for young SMEs – if they even decide to lend at all.
Space for collaboration
Even with the digital banks coming up, Mr Tan says Goldbell does not view them as competition.
“The banks possess certain advantages that FIs (financial institutions) like us do not currently have, such as banking accounts and lower cost of funds. So there is definitely space for collaboration,” he notes.
SMEs that are on the Polaris network may be underserved by banks at this juncture, but once they grow into a sizeable portfolio with the right credit risk structures and a good track record, Goldbell could then invite banks to participate in the existing loan book or to provide additional funds, he adds.
According to Mr Chua, the real reckoning for lenders – including Goldbell — will come when the loan moratoriums end next year. While he projects that NPLs will edge up slightly, he is confident that the business will weather the storm on the back of their credit assessments and relationship with borrowers. “There are inherent risks, but the important thing is to work with SMEs to get through it together,” he says. “If I pull the line, it will be bad for both of us.”