Despite stabilization of the debt markets, banks are increasingly reticent to lend to the small businesses. Banks have less capital and less of an appetite to lend to the small borrowers. Many of these businesses are as creditworthy as they were in 2008, but they just cannot meet the stringent conservative standards for present day bank loans. Fastpay, a technology driven “anti bank”, provides commercial loans against digital advertising receivables or Factoring.
Fastpay was founded in 2010. The company started out with a Enterprise Asset Based Lending (ABL) product that leverages data to lend to media focused SMB’s. Since its launch, Fastpay has lent out over $100 Mn of “working capital gap financing” to more than 100 publishers, ad-tech companies and other digital media businesses. Fastpay has received a total funding of $35 Mn.
Some features of Fastpay’s platform:
- FastPay lends up to $5 Mn per borrower. This is based mainly on the strength of the payable vendor (Ex. Coca Cola).
- Proprietary algorithms assess risk and determine credit worthiness of each applicant within hours.
- Borrowers are required to pay a flat monthly fee of 1 to 2.5 percent based on risk. Vendors remit payment to a bank “lockbox” that passes through the post fee balance to the business owner.
- When evaluating market opportunities, FastPay targets verticals where there is the presence of large brand advertisers, significant growth and a deficiency of growth capital.
The industry that Fastpay chose to start with is the media industry. This is because the media industry has 3 very important qualities- Scale, Demand & Opportunity. Talking about scale- Global advertising is a $495 Bn dollar a year market, of which online advertising is a $100 Bn market set to double by 2017 according to a report from Magna. Of course, lending to a growing market is always easier than lending to a declining market.
Talking about demand for digital media, the media payment terms are the longest in any market ranging from 60 - 120 days. The biggest spenders in the industry pay their bills the slowest. Just recently Proctor & Gamble, the largest consumer goods company slowed their payments to 75 days outstanding. The vendors that service these large advertisers are young and unbanked. This creates an amazing opportunity for a new class of lender.
The opportunity is backed by strong collateral with the likes of Proctor and Gamble with its $200 billion dollar market cap, and the cash flows being predicatable. Most importantly what makes this collateral lendable is the robust data at its core, which helps to generate the insight required to monitor the portfolio.
“There’s a general lack of financial literacy among most entrepreneurs. The controller or CFO is typically one of the last hires made by startups. It’s orders of magnitude easier to sell company for $25 million than it is for $50 million than it is for $100 million. If we can help founders keep more equity by solving their short term capital needs with debt, each of these outcomes becomes significantly more appealing” said CEO Jed Simon.
In recent months, Fastpay has expanded beyond its initial targets of ad-tech companies and publishers into several new verticals such as premium YouTube channels and Facebook PMDs (Preferred Marketing Developers). The company signed up six PMDs in the last three months, including two YouTube networks, according to Simon.
FastPay recently completed its first international transaction. The company’s growth has been fairly diverse geographically. Fastpay’s three largest customers are in Atlanta, Ohio, and New York in that order.