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Despite their own vast resources, some large banks are partnering with fintech startups to help them meet the needs of one of their trickiest market segments: small businesses
December 10 -
More lenders of all types are taking an interest in factoring, or buying a company's receivables, as they fight for commercial clients. But the business is forbidding for new entrants: it's dominated by a handful of large companies, with intense competition from smaller nonbanks, and is closely tied to the volatile retail-sales market.
June 2 -
Ex-banker Sandy Kemper, the chief executive of an online marketplace that allows companies to negotiate over discounted, speedier payments, discusses the future of commercial finance.
June 26
Since its birth in 2008, the mobile-app business has grown at a breathtaking pace. Apple's digital store now has more than 1.4 million apps, and the developers of those apps raked in roughly $13 billion in revenue last year.
Now a new type of financial company is helping to fuel the growth of these 21st-century small businesses. Online lenders like Aprenita, Payability and Pollen VC have all launched within the last 13 months to make loans and provide other financing products to app makers that have started to generate revenue.
These lenders say they are filling a need not being met by traditional banks, and only partially by venture capitalists and invoice-financing companies. In order to lessen the risks, they are using their tech smarts to tap into the sizable digital footprints left by app makers to determine which borrowers are good bets to repay.
"We really built this platform for what would traditionally be called a small or medium-sized business," said Mark Loranger, a co-founder of New York-based Aprenita. "But they're app makers."
Fierce competition in the app world means that developers often bootstrap their firms in the same manner as other fledgling business owners, relying on personal savings, credit cards or loans from friends and relatives.
Once app makers have started to generate revenue — usually from advertisers or subscription fees — the most effective way to get more users is often to plow those funds back into advertisements for the app.
But it can take several weeks, or even a couple of months, for payments to arrive from Google and Apple. Those delays can put the brakes on growth. They also make app makers obvious candidates for transactions, known as invoice financing or factoring, in which they pay a fee in order to receive the funds owed sooner than scheduled.
App makers have sometimes hit speed bumps, though, when they have tried to work with traditional invoice-financing companies. Martin McMillan, the chief executive officer of Pollen VC, said that he got the idea for his current venture while he was running an app development company and encountered problems when he tried to access invoice financing.
"I had to put my hand in my pocket to fund the company again," McMillan recalled. "I could see that this was crazy."
Keith Smith, the CEO of Payability, said his company makes invoice-financing payments to its customers on a weekly basis. By contrast, he said that some more traditional finance companies require their customers to send invoices by fax at the end of each month.
"An invoice, let alone a fax machine? This doesn't make any sense," Smith said.
Aprenita is competing against Pollen VC and Payability in the invoice-financing business. But the firm also makes term loans to app makers, in what amounts to a bet that it can analyze the large trove of data available about each app to determine which ones are likely to keep growing their businesses.
The term loans carry annual percentage rates of 15% to 25%. They do not require personal guarantees. In order to qualify, the app developer must be earning at least $15,000 in monthly revenue. An app maker that collected $20,000 in revenue the previous month might qualify for a term loan of up to $60,000.
"This is for products that are already on the market, and are already generating revenue," Loranger said.
The loan proceeds might be used to advertise the app, or to translate it into another language, which is another method for spurring growth.
In order to make loan decisions, Aprenita draws on a wealth of data from a variety of sources.
The app stores themselves provide information about the number of times the app has been downloaded, as well as reviews by customers. Advertising networks provide data on the amount of revenue the app is generating.
Other data analytics platforms reveal how many active users the app has, and how much time users typically spend on the app. Yet another set of firms provide data on the effectiveness of the app's marketing efforts.
"It's really hundreds, if not thousands, of data points for each app," Loranger said.
