Banks in Singapore still hesitant to issue loans to SMEs
P2P lending platform seeks to match SMEs with individual investors
ONLY 13% of loan applications from small and medium enterprises (SMEs) in Singapore are approved, according to figures released by SME consultancy Loyal Reliance, leaving a staggering 87% out in the cold.
Banks conduct stringent credit checks when processing loan applications, but many SMEs lack the necessary credit history to satisfy these requirements.
It is against this backdrop that Capital Match was established earlier this year. The peer-to-peer (P2P) lending platform, founded by ex-Rocket Internet executive Pawel Kuznicki and former investment banker Kevin Lim, is looking to play matchmaker to Singapore SMEs and individual investors.
The platform acts as a marketplace where SMEs can requests loans, providing financial and credit information about themselves for lenders to preview.
Lenders can then decide to participate in a loan request with contributions from as low as S$1,000 (US$ 742).
“The entire SME loans market in Singapore alone is currently S$100-150 billion (US$75-112 billion) in outstanding loans,” cofounder Kuznicki tells Digital News Asia (DNA) via email, adding that P2P lending is relatively young in South-East Asia, with only one other main player, Moolah Sense.
SMEs struggle with poor risk appetite
Singaporean SMEs face constant challenges, ranging from manpower to finance, with the Government pitching in to ease their way via policy changes and grants. It has even set up agencies such as SPRING Singapore to help such businesses grow.
But SMEs still have a tough time securing loans. Domestic and international banks in the city-state have been putting more resources towards catering to SMEs, but are still hesitant to issue loans or extend lines of credit.
“Based on past data, about more than half of them [SMEs] do not survive after five years. [The] failure rate is high,” said Eric Ong, head of emerging business at OCBC.
“And therefore, a lot of banks may have reservations about lending to SMEs,” he said in a recent report by Channel NewsAsia.
But there’s also a distinctly low appetite for risk in the island-nation’s banking industry.
That same Channel NewsAsia report also quoted Ang Yuit, vice president of membership and training at the Association of Small and Medium Enterprises, as saying that “The debt ratio and the bad debt ratio currently is still quite low in our market.”
“So that means, if you look at it, risk can still be taken and more risk still can be taken to maybe help SMEs,” he said.
Capital Match client Maxsolar (pic), which specialises in solar photovoltaic technology, can relate to this.
“Maxsolar produces enhanced solar panel technology that can increase energy yield by up to 20%,” says Kuznicki.
“The company has its own in-house research and development (R&D) lab and has also been awarded a SPRING Singapore grant of S$500,000 that is disbursed on a quarterly basis,” he adds. “It needed a loan to help it bridge the gap to the next grant disbursement.”
Maxsolar’s loan request at Capital Match was successfully completed, along with three other loan requests ranging from S$100,000 to S$200,000 which were finalised in the last two months, according to Kuznicki.
The successful commitment of a loan now ranges from a few days to 2-3 weeks on the Capital Match platform. Currently, SMEs can only raise between S$50,000 and S$250,000, with loan terms ranging from six to 12 months.
Surprisingly, loan requests have been coming not just from technology or new digital ventures.
“We see that regardless of the industry, there will always be companies that need working capital to grow their business,” he says.
“Right now, we have received loan requests from companies in industries such as construction, logistics, technology, beauty services, recruitment, manufacturing, F&B (food and beverage), retail, and others,” he adds.
For such a platform, trust, assurance and security are key concerns.
The due diligence process conjures images of people spending hours poring over financial reports and numbers. Capital Match is looking to buck that trend and fully automate the process, says Kuznicki (pic). “We are also looking towards greater automation in the near future.”
Currently, it relies on people power to process each company. “We have a credit risk officer in the team and also subscribe to a third-party credit service to assess the credibility of our borrowers,” he adds.
Capital Match still does the legwork the traditional way in ensuring due diligence is done.
“We look at multiple data sources (financial statements, bank statements, aging reports, etc.) and decide on the maximum loan amount and optimal interest to compensate for the risk involved,” says Kuznicki.
And as with all financial platforms, security is paramount for its user base. Capital Match has a variety of measures to ensure data is secure, he claims.
The platform provides SSL (Secure Socket Layer) to encrypt the entire user session, and has set defined timeouts to terminate sessions after periods of inactivity.
Its backend system also encrypts user passwords. It goes even one further for user documents, with two-key encryption requiring both the users’ hashed password and the platform’s key for access.
Revenue model, next step
Capital Match’s journey to launch had its fair share of challenges, including its infrastructure. Everything from teams and legal documentation, to processes and technology, had to be built from the ground up.
“There are many moving parts that needed to be addressed immediately,” says Kuznicki.
When asked about its revenue model, he notes that Capital Match acts as an agent between the borrower and the lender.
“Our revenue comes partly from a monthly processing fee to the borrower and partly from a commission on the collected interest rate,” he says.
The commission fee (20% of total interest collected) from the lenders and the processing fee (0.2- 0.25% per month) to the borrowers form the core of its revenue.
Capital Match’s marketing efforts have been extensive in the lead-up to and following its April launch. “We have been using social media platforms, going for conferences, and holding seminars,” Kuznicki.
On keeping on top of things, Kuznicki had this to say, “We keep ourselves motivated by staying focused on the end goal and working towards it by taking one step at a time.”
Since its launch in April, Capital Match has grown its lender database to 550 lenders, with 120 of them actively investing in loans to SMEs. Six loans have been disbursed, totalling S$750,000, with another loan of S$200,000 to be disbursed sometime next week.
In the meantime, Capital Match plans to its business development and technology teams in the next six to 12 months, and aims to further automate its services to enable a smoother experience for both lenders and borrowers.
“We will also be working on developing more protective measures for lenders in terms of setting up a trust account and working out a potential insurance scheme for lenders to minimise the risk,” says Kuznicki.
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