Fintech startup TruePillars funds small businesses through auction-based investment
Australia’s fintech community is fast trying to fill in all the gaps in every market, offering investment and lending options that the four big banks can’t and won’t provide. For small to medium businesses in particular, fintech startups are finding alternative ways to offer financial growth, robo-advice and risk assessment, stepping into the marketplaces banks have traditionally turned away from, deeming the cost of servicing small businesses too difficult to turn a profit.
Since 2010, Reserve Bank of Australia (RBA) figures have shown a steady decrease in loans under $500,000. Small loans have decreased by 7.6 percent, while larger loans over $2 million have risen by 35.7 percent. With small businesses responsible for 70 percent of employment in Australia, it is important they have the money to fund their growth. For investors, low interest rates are now causing many to reconsider their investment strategies and they are looking towards alternative options.
Australian startup TruePillars recently launched to serve small and medium sized businesses seeking loans to finance growth. In turn, the startup helps investors expand their portfolios and show their support for local businesses. The platform comes as one of the first offering an exclusive focus on small businesses and is now live for investors and borrowers to register.
John Baini, cofounder of TruePillars, said, “There’s a genuine marketplace lender in small business finance operating now. The evolution in fintech is fantastic, proving a lot of options for different purposes.”
TruePillars is a transparent marketplace where small businesses can obtain a five year loan from hundreds of contributing investors.
“Our platform empowers the investor to make choices and manage their investments according to their values because they can choose where their money goes, rather than into a pool with decisions made by fund managers,” explained Baini.
From a business perspective, the online platform offers a way for founders to repay loans and find investors with the right skill sets who can help them get immediately financed. Small businesses can apply for loans from $5,000 through to $250,000, which are funded by multiple investors.
Loan application is assessed by the TruePillar’s team, which consists of former bankers, using a real time auction system where investors create a portfolio and invest in as many businesses they want.
Businesses are able to apply online in under 30 minutes, with a risk assessment completed in a matter of days rather than weeks. Risk assessment confirmation is dependent upon whether the TruePillars team believe the business can afford the loan. If so, the business is listed on the platform and entered into an online auction where investors can bid. Businesses can watch each bid in real time and see exactly how the competition among investors is benefiting them. For each new bid the site is automatically updated, showing the current interest rate and repayment schedule.
Investors register online and in under five minutes can transfer funds via BPAY to a trust account. Within the auction, investors have full transparency of the wider marketplace and can see what other investors are bidding. Baini said the ultimate objective for an investor is to build a portfolio of investments across a number of businesses.
The platform works in real time and allows investors to offer a bid for a piece of each business loan in increments of $50. To help the decision making process, TruePillars offers a summary of information on each business, so investors can decide which business is the best portfolio fit for them.
“Our platform is the first in Australia to transparently put each investment opportunity into a marketplace where investors and not the fund manager decides where their money goes and how much it earns. This is incredibly empowering for investors as they can direct their money to a particular region or industry that they want to support. The potential for communities in Australia to get behind their local businesses is very exciting,” said Baini.
In Australia the SME space is largely focused on short term lending, under six or so months, from startups with credit lines, such as Spotcap. While this is great for immediate cash flow, it is not sustainable for long term financial growth and repayment schedules. With TruePillars, Baini said small businesses are offered loan terms for up to five years, which gives businesses the opportunity to repay investors over a more manageable and realistic timeframe.
TruePillars collects monthly repayments from the businesses through calculating the pro-rata share for each investor who took part in funding that loan. There is a once-off establishment fee that is deducted from the loan process and that fee is charged as a percentage of the loan amount; for example, for a one year repayment schedule the upfront fee is set at three percent, while a five year repayment is five percent.
Also competing in the small to mid marketplace is Sydney fintech startup Neu.Capital. The startup sources alternative funding opportunities from local and overseas investors, with its investment approach working as a deal room rather than an auction. Like TruePillars, Neu.Capital saw the gap in the marketplace, and works off sourcing investment for companies who want better rates and investment opportunities.
To give all investors, including retail or mum and dad investors, access to TruePillars, Baini is looking to receive approval from ASIC. If approval goes forward TruePillars will become the first SME lending platform to offer investment to all investors and not just those with multi-millions at their fingertips.
Currently TruePillars has raised $2 million in seed investment from a combination of local and international investors. Two prominent Melbourne companies, DiUS, a software and design agency, and Trout, a creative marketing firm, are among the pool of investors that have helped the startup to build its platform.
Baini said he wants the platform to be a place where businesses and investors work together to achieve a great outcome for communities around Australia.
“It has a stunning impact for communities in Australia. It’s an opportunity for local communities to get behind businesses in their area. The statistics from overseas show that this type of lending really does help create jobs and promote economic growth,” he added.
Over the next 12 months, Baini hopes to complete enough loans for people to be confident that TruePillars can deliver and compete against the big banks.
He said, “We want small and medium sized businesses to regard TruePillars as a place they can reliably come to get the finance they need to grow.”
Image: John Baini. Source: Supplied