Merchant capital advances come to Australian fintech

Brisbane-based company to offer SMEs merchant capital rather than loans

Merchant capital specialists Beyond Inc are set to offer a different kind of business lending. 

Small business lending in Australia was always due a shakeup. The powerful big four banks - so big that they make up 25% of the Australian stock market - never took it seriously. Lending to small businesses was too risky if the loans weren’t backed by property, and the loans too small to be worth the time.

But fintechs are giving SME loans a long overdue mixup. 

“There are almost two million small and medium sized businesses in Australia. And unfortunately for them they still traditionally have to deal with banks,” Jaco Gunter, the COO of Beyond Inc, told AltFi.

“So when they come across our product they can be quite amazed.”

Beyond Inc is one of the latest startups to enter the increasingly crowding fintech SME lending space. But the company is doing things differently, offering merchant capital advances rather than conventional loans.

Merchant capital advances are like loans but with added flexibilities for the borrower. Crucially, this flexibility includes different repayment terms. Unlike ordinary loans which have fixed coupon dates which, if missed, cause the borrower to default, merchant advances take a fraction of a company’s revenue or turnover until the loan is repaid.

“A merchant advance doesn’t have a fixed term like a regular loan does,” Mr Gunter says.

“Merchant advances take a fixed percentage not a fixed amount. In good times when it goes well you’ll pay more. But when bad times come the payment slows down. The banks do not offer this type of unsecured lending.”

Other Aussie fintechs claim to offer merchant advances, Mr Gunter says, but these tend to be merchant advances in name only. And their repayment terms tend to look and smell more like conventional loans.  This leaves Beyond Inc as one of the few Aussie companies offering merchant advances in the traditional sense.

And it matters, Mr Gunter says, particularly for businesses with uneven cash flows throughout the year.

“Let’s say you’re running a seasonal business on the Gold Coast, where you do most of your business in summer and spring. A merchant advance means that in winter and autumn, when the Gold Coast has fewer visitors, if your turnover drops sharply your repayment drops as well – reducing your chance of default.”

Beyond Inc was founded by Larry Prosser and Georgina Mariouklas, both of whom are based in Brisbane. Both have backgrounds in merchant capital and both have built up a long-standing relationship with First Data, Beyond Inc’s business partner.  

“If you compare South Africa to Australia we’ve got four big banks too, which, as in Australia, have dominated for a long time. Again, as in Australia, South African banks haven’t kept pace with business owners’ needs. So the landscape perspective its similar,” he says.

This is made easier by the fact that it’s the same types of small business interested in merchant cash advances in both countries.

“Around the world it’s usually the same four industries that are interested in and can sustain SME loans: restaurants and fast food; hospitality (i.e. spas, beauty salons); the car repair industry; and general retail (i.e. clothing, boutique),” Mr Gunter says.

For what’s left of 2017, the company hopes to continue building its national footprint. Beyond Inc has over 20 staff, spread over Sydney, Melbourne and Brisbane, making it one of the larger fintechs.