Serving SMEs’ overlooked needs for short-term financing via P2P financing

Despite its relatively short history in the country’s financial environment, alternative financing platform peer-to-peer (P2P) financing continues to gain upward momentum ever since its introduction by the Securities Commission in 2016. Evidently, close to RM377 million were successfully raised via the whole P2P financing industry as of June this year, benefitting over 1,100 small and medium enterprises (SMEs).

The introduction of P2P financing has no doubt helped to narrow the significant funding gap facing local SMEs by providing them an alternative source of capital to fund business expansion, finance working capital and meet other financial requirements. Contrary to traditional financing avenues, P2P financing is designed to improve efficiency and unnecessary “frictions” in the end-to-end financing application process, particularly for the often-needed short-term financing. These “frictions” range from arduous documentation and collateral requirements to long application process which present hurdles to the SMEs.

It is worth noting that the difficulties faced by SMEs when it comes to securing financing is not a reflection of their businesses being non-viable. Rather, they just don’t seem to fit into the standardized traditional financing products offered by large and traditional financial institutions, including banks, that mostly comprise higher value or longer-tenure products. Accordingly, due to these structural restrictions, these institutions are unable to provide shorter-term financing options for SMEs, for instance, financing tenure of less than 12 months. This consequently gives no choice for SMEs but to take up longer financing tenure, only to incur excessive costs in the form of additional interest rates due to the longer tenure.

P2P financing: The alternative solution for short-term financing needs
Oftentimes, SMEs are overlooked by traditional financial institutions that consider smaller businesses as not bankable and subsequently hampers SMEs’ chance at securing financing and simultaneously, affecting their day-to-day businesses. Given the advantages which P2P financing has to offer – including easy application process, fast processing time, and collateral-free documentation requirement – this platform is now becoming an ideal avenue for SMEs in need of short-term financing to maintain adequate cash flow and fuel their business growth.

Wong Kah Meng (pic), co-founder and Chief Executive Officer of Funding Societies Malaysia, said, “In most cases, traditional financial institutions will assess financing applications from SMEs by using two metrics: creditworthiness and bankability. First is creditworthiness – can the SME commit to the financing repayment? Second is bankability – the financing amount and tenure applied may be too small or too short and thus not viable for banks to serve. Therefore, P2P financing plays a key role in supporting creditworthy SMEs.”

Mohd Syafiq Aiman Bin Zainal, co-founder of Heron Solutions offering various home and business security solutions, and a client of Funding Societies Malaysia, stressed the importance of short-term financing for young business owners, “Maintaining cash flow is crucial for all businesses, especially new ones like ours. This is because being at this early stage of business means we have to secure as many customers as we can, and this also means adhering to our clients’ financing terms. Due to this, we need financing support from time to time to maintain orders, services and operation expenses. Thanks to Funding Societies Malaysia, we are able to secure short-term financing when we need it most to help us managing and growing our business.”

Majority of SMEs supported by Funding Societies come from key sectors of the Malaysian economy, including wholesale, retail trade, and manufacturing, thereby reflecting the broad appeal of P2P financing as a key source of financing for SMEs. In addition, P2P financing platforms have been partnering with corporates and financial institutions to find mutually beneficial ways to serve SMEs and investors.

To this end, Funding Societies is actively partnering with Lazada, Fave, MyTukar and CarlistBid, among others, to offer financing services to SMEs across various industries requiring short-term working capital needs. With customized financing tenures and repayment structures, P2P financing products are tailored to the specific requirements of SMEs.

As the first and largest P2P financing platform in Malaysia, Funding Societies has achieved notable milestones – including being the first P2P financing platform to raise total RM128 million in Series A and Series B funding, led by leading venture capital companies such as Sequoia India and SoftBank Ventures Asia, all with the objective to serve and foster the growth of underserved SMEs.

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