David Jackson is part of fintech hub Stone & Chalk and a board member of angel investment group Sydney Angels. After running a successful recruitment business with an annual turnover of $5 million, he noticed that the company was always owing $700,000 to $1 million to debtors, usually large corporates that would dictate longer terms of 60 to 90 days.
Last year, Mr Jackson launched FundX, an online marketplace invoice lender that connects directly to the accounting software of SMEs and harnesses big data and machine learning to deliver credit decisions in less than 15 seconds.
Mr Jackson told Mortgage Business that banks and credit unions have turned away from the Australian SME sector in favour of the more profitable home loan market.
“Traditional lenders such as banks and credit unions are extremely well-placed to lend to very large businesses or service the home loan market,” he said.
“The banks are making huge profits out of mortgages and they are secured. If you don’t pay your mortgage they just come and take your house back and sell it. In a rising market they are making good money.”
However, when it comes to smaller and medium businesses or start-ups, Mr Jackson said there exists a real gap in the banks’ capacity to understand and price risk, resulting in a tendency to reject applications based on a lack of information as opposed to a lack of creditworthiness.
“This is exposing Australian businesses to liquidation risk where debtors fail to meet their payment terms, and short-term finance to tide them over is simply unavailable.”
Mr Jackson highlighted the recent collapse of a supplier to Woolworths’ Masters chain in the wake of the hardware giant’s own demise as indicative of a much wider funding problem facing businesses in Australia.
FundX calculations applied to Reserve Bank data indicate that this market is being underserviced by banks and credit unions to the tune of roughly $20 billion of unapproved loans per month, leaving these businesses highly vulnerable to their debtors.
“It’s a situation that also represents a very large opportunity for Australian investors,” Mr Jackson said.
“There is a huge ability for potentially higher returns by directly investing in certain asset classes where the banking middlemen become irrelevant,” he said.
“There is an entirely new asset class through digital disruption and peer-to-peer and marketplace lenders. It’s basically untapped in Australia. It’s only been here for a couple of years.
“There are more players coming into the space. There are a number of reasons why the debt market has huge potential.”
In the case of FundX, current investor funds are lent on balance sheet and connected with loans based on a predictive risk algorithm developed in conjunction with KPMG, minimising investor risk and allowing for returns of upwards of 12 per cent.
“By giving investors access to this market, they will be exposed to the same $20 billion per month opportunity that alternate lenders are now seizing on, achieving a significant ROI in the process,” Mr Jackson said.
FundX has already written more than $1 million in loans and is generating a strong network of repeat customers, including a number of start-ups featured on Network Ten’s Shark Tank television series.
Mr Jackson said Credit Suisse and Veda have expressed an interest in the platform.
[Related: KPMG highlights significance of SME lending]