In Singapore, substantial government support and policies are helping the country gain traction as an entrepreneurial mecca. With an average of 50,000 startups launched each year, the startup scene in Singapore continues to grow.
Despite the burgeoning startup scene and booming business ecosystem in Singapore and across Southeast Asia, over 70 per cent of the adult population in Southeast Asia is still underbanked. This suggests a substantial market gap in an environment with over 75 million businesses.
This is where innovative financing solutions can step in and help fill the gaps. One such solution is revenue-based financing. At its core, revenue-based financing helps enterprises raise capital through investors who receive a percentage of revenue from ongoing activities.
This means that the royalties that investors earn have a direct relationship with how well the business is doing.
Essentially, this opens up a channel for non-dilutive funding that is short-term and flexible. In terms of funding, revenue-based financing hasn’t really been accessible for businesses until recently –and this is the gap that we are trying to fill with Jenfi.
Traditional methods unfavourable towards SMEs
First, let us understand why traditional methods do not always work for SMEs and startups. Traditionally, banks fund businesses through conventional financial programmes such as debt-financing, but these processes can be too taxing on small companies who do not want the burden of collateral or personal guarantees.
Old school underwriting, which entails institutions or individuals to take on risk at a fee, also means that businesses might not qualify for enough credit even though they may be well-founded. For instance, digitised businesses may own fewer assets to put up for collateral.
Also Read: The case for alternative lending
There isn’t to say that financing companies have not changed since the old days, but the drive-in fintech has always been geared towards automating manual processes instead of improving the underwriting approach.
Lending from banks seems to be on the side of large corporate clients with years of built-credit, leaving smaller, newer companies to deal with a gruelling and time-consuming process.
Businesses today are built differently – owning less fixed assets and more technology-driven innovation. With that in mind, they may not have enough on paper to secure a loan, or it just does not make financial sense to borrow at high-interest rates.
Therefore, there is a need for innovative disruptions to provide monetary support.
Refining the process of risk management
With the key issue of limited financing in mind, at Jenfi, we seek to bridge the gap between suitable growth financing and underbanked businesses in Southeast Asia.
We have built the Jenfi model purely from a growth perspective to deliver business-friendly financing to digitally-enabled enterprises. We use tangible metrics to measure our client’s potential using proprietary data to unlock growth opportunities. Instead of taking on financial risk for a fee, we use alternative data to predict business potential.
The assets that we value are directly relevant to the business. Underwriting in this context is based on the “productivity” or “productivity of growth” of qualified businesses that are truly backable and growing.
Businesses that qualify for funding are then issued cash or given a virtual Jenfi Mastercard solely for growth expenses (e.g digital marketing spend). Real-time revenue growth, ongoing activity and ROI are monitored too.
This way, additional capital can also be allocated when businesses are at an inflexion point and primed to take off.
Also Read: Cashflow and financing: what companies need to know
Businesses need to form true partnerships to align values
In an environment with immense competition, it is crucial for companies to form alliances that have a personal interest in their growth and goals to thrive.
Revenue-based financing not only ensures that businesses are allowed to return loans based on what they earn, but investors are also obliged to have a stake in company performance.
Unlike traditional lenders, the method of financing requires a lot more due diligence on the investor’s part to measure productivity and future plans to assess a company’s potential. The unique variable repayment model essentially ties the weekly repayment to a small percentage of sales instead of charging by interest.
This way, Jenfi is incentivised to ensure that the business continues growing healthily, aligning the success of the business with our success.
Being Asia’s first provider of Growth Capital as a Service, it is necessary for Jenfi to have a direct interest in healthy development. As a result, one of our goals is to keep businesses disciplined and prudent in spending in order to succeed together.
Changing the face of funding for companies across industries
Jenfi’s clients range from different online and offline businesses that are digitally-enabled. Regardless of industry, we want to present a fair stomping ground for SMEs and startups to flourish.
For digitally-enabled companies with stable revenue and active marketing, the Jenfi model is a quick and inexpensive way to fuel your business. Some of our data integration partners include Braintree, Stripe for Payment processors, Shopify for Merchant platforms, Quickbooks Online, Xero for Cloud-based accounting and Facebook advertising and Google Adwords for Digital marketing advertising.
Also Read: How can startups fundraise during a crisis
Since our launch last year, the average Jenfi client has experienced a significant amount of compounded growth over time (+26.5 per cent over three months, +60 per cent over six months and +156 per cent over 12 months). We believe our capital will help companies generate an incremental US$58 million in sales over 12 months, a 156 per cent increase from the aggregate sales now.
At Jenfi, we want to give ethical and eager businesses a fighting chance across industries. The next logical step is to deliver this model to unlock growth capital for tens of millions of underbanked businesses across Southeast Asia.
–
Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.
Join our e27 Telegram group, or like the e27 Facebook page
Image Credit: Artem Beliaikin on Unsplash
The post How revenue-based financing will help unbanked and underbanked businesses flourish appeared first on e27.