Goldman Sachs has validated the invoice financing technology developed by Timelio by agreeing to lead the funding of its first warehouse, which can scale up to $270 million and will allow the fintech to grow small business loans against unpaid invoices.
Warehouse funding to financial technology companies is a growing focus for Goldman Sachs globally. The global bank provides Afterpay with a facility in the United States and has spent 18 months examining Melbourne-based Timelio’s systems to ensure they can assess SME debtor risk and protect against fraud.
The deal provides fuel for Timelio’s short duration loans, which average around 50 days, meaning the $270 million facility provides enough headroom for almost $2 billion in annual lending, compared to $1.5 billion it has lent since its inception in 2015.
“It enables us to be aggressive in this market, and that is what we are targeting” said Timelio co-founder and CEO Charlotte Petris.
With demand rising for alternative forms of financing not secured by residential property, global investments banks are looking to fund technology companies that have developed superior risk assessment systems to banks for niche loan products, helping to drive a surge in warehouse funding markets.
Goldmans joins a bevy of specialist debt funders to fintechs, including IFM Investors, Challenger and Revolution Asset Management, with analysts estimating between $5 billion and $10 billion is invested in mezzanine warehouse funding in Australia.
Credit Suisse is also getting behind SME funding, and is one of the investors in a recent $200 million debt deal from SME lender Tradeplus24, which is based in Switzerland but counts Australia as it fastest-growing international market.
Larger competitor Octet, meanwhile, secured a new $300 million warehouse facility from three Australian lenders, including a big four bank, last week.
Timelio’s funding is up 300 per cent in the past three years and demand has accelerated this calendar year. Over the past six months, customer demand has grown an average of 15 per cent month-on-month and the average size of a customer’s funding requirement has lifted to $1 million, up from $250,000 in 2017.
One of its equity investors is Thorney Investments, which also backed the Timelio Capital Fund 2016, which is supported by a group of around 50 high net worth investors and comforted Goldmans on the track record; the fund has returned between 7 per cent and 8 per cent a year. Another investor is Anthony Thompson, co-founder of neobank 86400, which was purchased by National Australia Bank this year.
While big banks have big advantages accessing funding, “big banks are very inefficient in terms of technology but Timelio and others in this sector have built a more efficient machine,” Mr Thompson said.
The technology assesses the risk of debtors and lends against invoices already sent out before an SME is paid. Demand is strong from the consumer goods sector, where manufacturers often strike deals with retailers but still require capital to bring the product to market or import it. Its customers make beauty products, clothing, and new food and drinks including sugar-free options popular in supermarkets.
Blockages in global supply chains due to COVID-19 and the rising cost of freight has provided a tailwind for Timelio because more companies need larger amounts of funding up front. But the pandemic has also had a negative impact, pushing down demand for loans in the construction sector.
Mr Thompson said Ms Petris, who runs the business, and her husband Andrew are among the best entrepreneurs he has seen globally. “BNPL changed the face of consumer credit around the world and Australia led in that seismic shift in how credit is delivered. Now with Timelio in business lending, we are seeing technology used to offer other forms of easy-to-access (lending that is) very efficient for businesses.”
The new facility allows Timelio to maintain its existing flexibility, including funding invoices denominated in foreign currency invoices to lend to exporters. Its fee is a percentage of the funding amount that it says is competitive with bank rates.
Along with Octet, Timelio competes with ScotPac, which is adopting new technology, and the big four banks. Executive chairman of Thorney Investment Group Alex Waislitz said Timelio “is ideally placed to grow further as the economy comes out of COVID-19 lockdowns and this new funding facility will help it scale quickly and satisfy the strong demand they are experiencing.”
Last week, the Productivity Commission used a research paper on small business access to finance to point to the significant evolution in the lending market for SMEs in the last decade, but said many SMEs are not aware of options and may not feel confident about new providers. “Finding the right product may be challenging, but the benefits can be significant,” Productivity Commissioner Malcolm Roberts said.
Commonwealth Bank has identified the growing desire for SMEs to borrow without putting the family house on the line, and is working with another player, Xero-owned Waddle, to develop services for the lower end of the market.
“They are waking up slowly,” Ms Petris said of the major banks “This is a specialist product: you can’t treat it like a loan. They are aware they need the technology and expertise to understand the space.”
Originally published by The Australian Financial Review