First principles for Fundbox gives it the visionary edge in SME lending

Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a neowealth disruptor in Australia.

This week US SME lender Fundbox landed fresh funding, raising $176 million from new and existing investors. What sets Fundbox aside from other lenders in the market is its 1st principles approach to solving the millennia old problem of trade finance. Rather than build a pure-play lending business, the company has looked deeper into the architecture of B2B lending. It now has its sights set on becoming a Visa-like payments network for B2B sales, minimising the friction in counterparty risk assessment.

Why is this so important? Because sluggish payments in supply chains are hurting economies all over the world. According to data from the U.S. Small Business Association, $3.1 trillion is the amount owed by buyers to sellers on any given day in the US.

Hurting to the point of killing. In Q2 of this year, company bankruptcies saw an up-tick from Q1, to 22,823. While this is still well below the long-term average of 44,594, given financing and cash flow issues are often underlying causes of bankruptcy, just how many could have been prevented by smarter funding solutions, like Fundbox?

This is the billion-dollar question that Fundbox’s founders and investors believe they have the answer to, in their quest to automate underwriting and remove the need for businesses to credit assess each other, prior to entering into a transaction. After all, very few small business owners are bankers, or wish to be one.

The fact that the small business economy still operates on ‘invoices’ makes little to no sense in a world where consumers have embraced credit, whether that be traditional Visa, MasterCard or Amex products, or the new flavours of credit, in the form of buy now, pay later.

While consumers have proven they can rapidly adjust to new flavours of credit, businesses have typically struggled to follow suit. Many fintech lenders report that educating business borrowers about different types of credit can be the most challenging part of prising them away from the expensive or inflexible bank credit they’ve grown accustomed to.

Fundbox might be able to change this. The business has shown a willingness to lend to businesses with as little as 3 months trading history, which in itself, is a game changer. If it can build a smart set of financing rails that small business owners (who are far closer to consumers in mindset than corporates) can actually understand, then they have a real shot at unleashing some of those trillions of dollars, back into the economy.

Efficiency not necessarily growth is the story here, and there is much to be gained by achieving it.

Notable Replies

  1. ask a small business owner what keeps them up at night and cash flow is likely to be high on the list. Unlocking the money in B2B supply chains is critical to this.

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