Fleximize, a new finance company, will provide small/medium enterprises (SMEs) in the Transport & Storage sector with an innovative and flexible source of financing – a Revenue Advance.
Repayment schedules for clients will be based on their revenue flow, which means that it more closely fits their growth path.
Fleximize believes that many financially strong and viable enterprises are being rejected for loans because they do not fit the strict criteria applied by many banks. By using a more in-depth analysis of a company’s financial performance and its customer feedback on online trading platforms such as Amazon and eBay, Fleximize aims to lend to many of the organisations that have been rejected by banks.
New research(1) by the company estimates that the value of business loan and overdraft applications from manufacturing SMEs rejected by banks in Q3 2013 was up to £36.9m. Nationally, the figure was £1.2bn.
The launch closely follows recent criticism from MPs on the Public Accounts Committee that small and medium sized businesses in the UK are still struggling to access funding, despite the government trying to help through its Funding for Lending Scheme.
Latest figures showed that net lending by banks through the scheme had fallen by £2.3bn since June 2012. Under the scheme, banks and building societies were able to borrow money cheaply from the Bank of England provided that they then loaned the money to businesses or individuals.
Built through collaboration between finance professionals and successful British entrepreneurs, Fleximize will provide credit to UK small businesses through a revenue based financing model, sometimes referred to as non-dilutive financing or royalty-based financing. Under this model, companies receive funding from Fleximize in exchange for a fixed percentage of gross revenues (typically 10-20%) until a certain total amount is paid back (estimated to be 1.10-1.30 of the initial amount advanced to the business).
Monthly repayments therefore reflect business performance rather than being yet another overhead cost. This is in contrast to the traditional fixed-term lending model used by banks and direct lending companies where monthly repayments are fixed and could damage the finances of small businesses in months when revenues drop unexpectedly.
Fleximize’s proposition is primarily designed to serve small under-banked businesses, including those operating in the e-commerce space. As a result of significant amounts of data available from online platforms and marketplaces, Fleximize was able to develop its own unique credit-scoring model that, as well as traditional credit data, also incorporates numerous aspects of an online seller’s history that a regular bank would disregard, including revenue history and buyers’ reviews/feedback.
Max Chmyshuk, founder and managing partner at Fleximize, said: “Revenue-based financing (RBF) is often viewed as 'the best of both worlds' sitting between debt and equity investment. The value of monthly repayments fluctuates with the performance of the client’s business so they pay more in good months and less in bad ones. This can be attractive for many SMEs in the Transport & Storage sector, particularly in the current uncertain economic environment.
“We feel that our revenue-based financing solution is significantly less risky for a business than other forms of more mainstream financing usually involving fixed regular repayments. There is a natural alignment of interests between us and our clients compared to a traditional loan: any payment to us means that the clients are successfully selling their products or services.
“At the same time we are not diluting an owner’s stake in their business, which often happens when they secure an equity investment. Here, they may also be encouraged or ‘forced’ to sell their business as a result of this as most equity investors provide financing with an exit in mind. We would never push business owners in that direction, we just want them to bring in revenues and grow their businesses.”
RBF is not an entirely new concept. It has been used for years in oil, mining and film production. During the early- to mid-noughties, it became a viable source of funding for pharmaceutical and biotech companies suffering from a ‘drought’ in traditional sources of venture funding post the dot com crash. Around 2010, RBF was successfully introduced to the US SME market, and Fleximize believes it can be an equally successful and effective source of funding for UK SMEs.
Max Chmyshuk said: “Many strong and sound businesses are finding it very difficult to secure funding from banks. Our analysis(2) of industry data reveals that in 2007– 2008, around 15% of business overdraft applications and 9% of requests for loans from SMEs in the UK were rejected by banks. Alarmingly, the corresponding figures for 2011 – 2012 were 19% and 23%.
“What is also of great concern is that more good businesses get turned down - the overall credit rejection rate for SMEs seen as having ‘minimal risk’ was at 17% in 2012 and probably has not improved in 2013. We see this as an opportunity for us to step in and help solid businesses realize their growth ambitions.”
(1) Fleximize analysis of British Bankers Association data
(2) Department for Business Innovation and Skills Publication “Evaluating Changes in Bank Lending to UK SMEs over 2001-2012 – Ongoing Tight Credit?”