The invoice finance space is becoming increasingly competitive. The alternative market has for a few years been dominated by the likes of MarketInvoice and Platform Black. But in December we learnt that Assetz Capital, via a JV with The Interface Financial Group, would be branching out into selective factoring. And now, the self-styled “new kid on the block” GapCap is also beginning to pick up considerable momentum.
The platform does not operate a peer-to-peer, marketplace-based model. But invoices may be financed selectively. Invoices are funded fast. The platform’s private investors have enjoyed strong returns. And GapCap features a few innovative aspects of its own design. For instance, the platform has the option of accepting a portion of interest payments in the form of the excess goods or services supplied by the client company.
Just to clarify the mechanics: the client produces a good or service for a debtor and issues an invoice > GapCap advances a percentage of the value of that invoice to the client > the debtor later pays the full value of the invoice to GapCap > rather than be paid the full interest rate in cash at the beginning of the transaction, GapCap is able to exchange of a portion of the interest rate for equivalently valued goods or services > GapCap sells those goods or services into their networks, which include the Bartercard network (an online marketplace for the exchange of goods and services between 55,000 member businesses).
For a thorough explanation of this feature and of the platform in general, we caught up with GapCap Director Alex Fenton.
Can you give us a brief introduction to the platform?
We are the new kids on the block, so to speak, in cash flow financing and facilitating SME growth. We marry a unique SME finance facility with a business development and mentoring service. Our core offering is selective invoice finance, but rather than putting businesses through an auction platform, once invoices are accepted through our portal, we finance from our fund structure, allowing the SME to accurately forecast their cost of finance and investors to be assured of their return.
The unique aspect to our finance offering is that we have developed ‘stock-option financing’ – whereby through our unique partnerships, we can (only if the client so desires!) take part-payment of our interest rate in the goods/services of our client. This creates a true partnership as we become not only a more cost-effective finance option, but also a valuable new distribution channel.
We also have the ability to offer additional value to the businesses we fund - the Business Development and Mentoring side of the business is built around a team of entrepreneurial mentors who have ‘been there and done that’, they look to take a holistic view of a business and encourage growth by drawing on their own experience and expertise. These two core parts of the business run both separately and together, and both are tailored to allow our clients access to the key tools for fast business growth – cashflow and expertise!
Practicalities: how quickly can your borrowers get access to funding? What is the range of rates that they might pay? What are the terms? Do you require that a certain calibre of debtor be involved?
The fastest turnaround we have done is 28 minutes! But we aim to give an initial assessment within 48 hours of receiving all the relevant information and releasing funds within 72.
We do require a certain calibre of debtor – we credit insure all of our debts, so we need the debtor to be credit worthy to the limit requested.
Our charging method is completely unique – we can (and usually do) charge an industry par monthly interest rate, but by being able to take part-payment in the goods/services of our client, we become a much more cost-effective finance option, and in addition, we become a new distribution channel for our client, who we then introduce to the companies we sell their product to, and facilitate further business via the GapCap relationship.
How is GapCap funded?
We have been funded by private individuals up to now, but are currently in the midst of a funding round, which will enable us to give cash flow help to more and more SMEs.
What do you make of the P2P model – and will GapCap look to install some kind of dynamic bidding exchange for invoices?
We do plan on continuing to innovate and having technological systems at the core of our business is a key part of what we are doing and intend to do, but no, we do not plan on adding a dynamic bidding exchange. We really believe in the fund structure whereby we do the hard work for the investor, naturally monitoring the risks closely, but diversifying the portfolio, continually reinvesting in the right risk, to achieve the headline returns, whilst still maintaining a level of liquidity as well. Having said that, I am a real champion of P2P as a concept. For too long private investors have had funds in the bank that the banks have been making lots of money on. By cutting out the middle man, not only does P2P enable investors to get a better return, it also allows risk appetites to be higher as the SME is not being lent to by 1 entity, but by many as one aspect of a diverse P2P portfolio.
To your mind, which is the greater innovation: selective invoice finance or P2P?
P2P and the technology around it are challenging the established structures in lending and in investing – to that end, undoubtedly that is the greater innovation, and the scale of P2P and the rate of growth is impossible to ignore. However, in receivables finance, selective invoice finance has laid down a marker, making it possible for SMEs to receive the cashflow boost they require in a more flexible, more transparent and more cost-effective manner. That is no bad thing!
Is GapCap a regulated entity?
No, we are not regulated at this stage.
What might the government do to better support the online invoice finance space – and more specifically your platform?
It would be very helpful to put a tax efficient structure for private investors looking to lend to SME’s, even in the shorter term. If the government is serious about SMEs being the lifeblood of our ‘innovation nation’ then giving more of an incentive to investors to help with working capital should be something to consider. There have been plenty of high-profile partnerships between banks and alternative lenders, which is terrific, but I think that more government encouragement for diversifying the options available to an SME looking for finance is key. For us, both of the above would support us nicely!
Where do you see the platform in a year's time?
We are an ambitious bunch and we have grand plans for additional products, new partnerships and technological and financial innovation, but the core of our job is an educational one, informing SMEs of different options, and I would count it as a successful year if we had simply helped to increase awareness of this space as a whole. That may seem unambitious but as business owners and entrepreneurs become more aware of the available options, for many, once they are aware of what we offer, it will be a no-brainer and as a result our business will be successfully helping many more SMEs with their growth.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.