The corona crisis has caused banks to push the brake pedal on lending even harder, notes Jamie Burink, Head of Business Lending at Fyndoo. Of all SMEs, 22 percent needed business financing between July 2019 and the following year, according to the Financing Monitor 2020 of the dutch Central Bureau of Statistics. One in five applicants did not receive their credit (in full). Banks are tightening their requirements and entrepreneurs are increasingly relying on other lines of credit.
Alternative financing is booming. "That 'alternative' can be scrapped," Burink admits. "In the past, if you had to sell debtors, that might have been embarrassing for entrepreneurs. Nowadays, factoring is a logical option to free up liquidity." He points out that consumers are also already dealing with this, perhaps without realising it: "They don't know better than that their dental bill comes from a factoring company."
Whereas the private credit market is fairly homogenous, according to Burink, the business market now has so many forms of financing and providers that it is safe to talk of proliferation. "When banks had to watch their step after the credit crisis, many players jumped into the gap created: flash loans, factoring, leasing, direct lending, mortgages, credit unions, crowd funding, private equity. And there are still new variants. Not to mention the growing number of providers. I estimate that we are fast approaching two hundred."
More debt advisors
The success of alternative financing has a downside. With so many providers and types of credit, the market is confusing for SMEs. It makes entrepreneurs more susceptible to risky contracts, especially when they are in dire straits. And that happens more often in times of crisis, when more than 17 percent of the (partially) successful credit applications served to bridge a difficult period. Especially in the trade, transport and hospitality sectors. But 'cheap' loans can be expensive, warns the AFM and others.
The need for expert advice is increasing, says Burink. Parallel to the increase in the number of lenders, the number of players in the debt advisory field is growing. Fyndoo, a label of software developer Topicus, is focusing on that segment, among others. The financing platform helps entrepreneurs and their advisers to see the wood for the trees. The software does not limit itself to a select group of preferred suppliers, but presents the most complete range possible and compares them. From traditional and real estate banks to leasing companies, direct lenders and other alternative financiers.
This is how Fyndoo brings more transparency, Burink believes. "We open up the entire chain, including providers who do not use our software themselves. Not all financiers like this transparency. But it does provide SMEs with the best solution for their growth.
Market partly immature
Rapid growth does not yet make for a mature market. According to Burink, the same applies to alternative financing. For example, there is still no formal supervision and there is no ban on commission for intermediaries, as there is in the private market. Recently, however, there have been (voluntary) quality marks for financiers and advisers. "The established order looks at hip, fintech-like initiatives with some jealousy," says Burink. "Particularly in terms of agility and technology. Start ups make cut outs that navigate around strict laws and regulations. Banks, on the other hand, have to comply with strict requirements, with regard to capital requirements, customer acceptance, fraud and file build-up. Even in the case of small loans, they consider the process of providing money to be complex. No wonder they say no to an application more often." According to Burink, this does not detract from the fact that large banks are following the developments closely: "Whereas they initially viewed this young market with a somewhat disparaging attitude, you can now sense in them FOMO, fear of missing out." Platforms such as Fyndoo are now being taken seriously.
Biggest success rate
Financiers with the greatest chance of success for their clients are clearly presented. Forms of credit that do not fit have already been eliminated in a knock-out round. "This way, no unnecessary time is spent on applications that already have no chance of success," says Burink. In his view, the wide range of products also shakes up the bed a little: "We introduce some competition. In that sense, he says, Fyndoo is more than a marketplace. "Our solution goes beyond a flat application machine. With our advisory module, you as a debt advisor can simulate what it means in terms of liquidity and profitability for the customer if a particular financing is chosen."
The process with Fyndoo's advisory software is entirely digital: annual accounts and balance sheets are imported automatically, forecasts and scenarios are generated and creditworthiness can be determined quickly. In this way, the consultant increases his client's access to external capital and a financing application can be quickly dispatched, with a greater chance of success.
Not a competitor but an ally
"We are not a competitor of debt advisors, but an ally," emphasises Burink, when asked if the software is not carving out a market share. "As an IT service provider, we solve a certain asymmetry. An entrepreneur can apply for simple products himself. As soon as it becomes more complex, the expertise of an advisor is really needed. He or she not only looks at the purpose of the financing, but at the whole picture. Including, for example, what collateral the entrepreneur has to put up as security. Taking out a loan is a decision with a major impact on the business. The knowledge and skills of a finance consultant are not simply captured in a technical platform. It is the combination that makes the whole very powerful."
Entrepreneurs are still often hesitant to engage such an advisor. A pity, Burink thinks: "Practice has shown that his expertise leads to a better deal in almost all cases. Firstly, because the best solution is chosen that suits the entrepreneur and his business. Secondly, the broad analysis of the possibilities often results in a financial advantage that goes unnoticed if the first best option is chosen."