SMEloan, which was formed earlier this year with $30 million in funding from venture capital company Whitney & Co., provides credit to small and medium sized companies that have traditionally had difficulty raising working capital loans from lenders. SMEloan originates and services the capital it loans using a proprietary internet platform.
Hong Kong has more than 290,000 small to medium-sized enterprises, which account for 98% of businesses and employ about 60% of the workforce, according to the Hong Kong Government's SME Information Center. SMEloan is based in Hong Kong's Citibank Tower.
"The company has some 200 customers and is expected to be profitable within the next year," says Brian Doyle, managing director of Whitney Asia.
The HK$600 million will help SMEloan expand its customer base to over 1,000 within the next year, the company said in a statement. Hong Kong-based SMEloan was founded in 1999 by the company's management and Whitney & Co.
"We are very pleased with the creative financing structure we were able to arrange with Center Solutions and Standard Chartered," says SMEloan's chief financial officer, Steve Marzo. "The debt facility provides us with additional financing to fund our loan growth into 2001 as well as position us to securitize our loan book in the near future."
Small loan market goes online
The small loan market has historically presented problems for big banks, partly because of the sheer number of loans that would need to be managed and because of the diverse credit risk. The first internet-based web sites to try to attract small to medium sized enterprises were auction houses such as US-based LiveCapital.com, which allowed bidders to undercut each other for the business.
LiveCapital.com is the market leader in lending funds under $100,000. It originates the loans and presents them to multiple lenders. The company charges the lender a commission of 1.5% to 2% of each loan. The lender also handles the paperwork and settlement.
The new web-based sites for small to medium sized lending are coming from companies such as SMEloan, formed to reduce costs for customers but also to improve the bank's customer credit and management businesses. In the auction-only business, web sites would aggregate customers and sellers, connect them online, but allow the transaction to be completed offline.
SMEloan, by comparison, puts its own capital at risk. The company takes on the loan and the credit risk itself. The fact that the loan is securitized reduces some of the capital restraints to entry. On the other hand, it won't be easy for new entrants to grow; to successfully carry out the due diligence required on each new loan; and to carry out the face to face meetings each new loan implies.
Unlike big banks, which offer loans based on collateral such as property, SMEloan offers loans on the basis of a company's accounts receivable, according to Ming Siu, chief executive of Greenwood Capital, the operator of SMEloan.
SMEloan offers near-instant credit lines of HK$400,000 and HK$1 million. The businesses the company finances range from toy-makers to food processors and publishing houses.
If successful, SMEloan and companies like it could put pressure on bigger banks to lower their rates and ease costs for small businesses.