SME financing – Is there a better way?

April 23, 2015

Craig Moore – Founder & CEO

As Founder and CEO, Craig is responsible for overseeing the overall strategic direction and managing the day-to-day operations of Beehive. Before founding Beehive, Craig was a Founder & COO of Butterfly Software, a data analytics and migration software company acquired by IBM in September 2012. Prior to Butterfly his experience includes various sales, consulting and finance roles at numerous multinational companies such as Dell, EMC, Hitachi and HSBC with an emphasis on shaping effective go to market and value propositions.

 Could you give us an overview of the SME landscape in the region?

 Small and medium sized enterprises (SMEs) are the most common businesses found across most of the world’s economies. Usually defined as being an independently owned and managed business with fewer than 250 employees, and annual turnover of less than $45 million. Such firms comprise around 90% to 95% of all businesses in most economies. They also make a significant contribution to employment and are of interest to governments primarily for their potential to create more jobs.

There are around 300,000 small and medium-sized enterprises (SMEs) that account for about 60 per cent of the UAE’s non-oil economy and 90 per cent of total businesses. SMEs are critical to employment creation and economic growth, yet they account for only 3-4% of bank lending and bank loan rejection rates for SMEs are between 50-70 per cent.

SMEs can have a particularly difficult time getting financing from banks. The eligibility criteria for application in addition to the financial/company information required can prove a significant barrier. The assessment of loan applications may take many months, which is often too long for many SMEs requiring fast access to cash for working capital or expansion.  These reasons and more can contribute to a significant funding gap between the supply and demand of SME finance. The International Finance Corporation (IFC) estimates that the current SME funding gap in MENA has reached approximately $260 billion.

Beehive’s unique offering helps support the growth and development of the 300,000-plus SME businesses operating in the UAE, serving as a partner in the current drive to achieve SME policy targets.

  Supporting SME growth is certainly a positive focus for the region, considering their contribution to the community. Could you tell us more about Beehive and how exactly it supports SMEs?

Beehive is an online marketplace for peer-to-peer finance and we’ve rapidly grown to be the UAE’s leading online peer-to-peer platform. We launched in November 2014 and are based in Dubai, initially focusing on the UAE.  Beehive directly connects established, creditworthy businesses seeking finance with smart investors to who want to invest to support their growth

Our platform uses crowdfunding technology to reduce both the cost and complexity of obtaining finance. The result is that SMEs funded on our platform get faster access to lower cost finance and investors get better returns and diversified risk. The relationship between investor and business is mutually beneficial. Investors also know they are investing locally into the growth of UAE businesses and the economy.

Beehive facilitates faster and more flexible funding for SMEs seeking in excess of AED 100,000 for up to 3 years, which typically results in a lower cost of finance compared to conventional sources. Investors can bid to fund business loan requests from as little as AED 100 and can get very healthy returns on their investments as well as monthly repayments on their investments. We have investors currently getting returns of between 10-14% APR on their portfolio.

We conduct very thorough due diligence on each business listed on Beehive and we facilitate the finance agreement between the business and investors, charging a small percentage fee of the finance amount.

Investors are also able to buy or sell their finance parts to other investors on the platform through Beehive’s secondary market, giving investors access to a liquid market place where they can trade finance parts, in a similar manner to a bond market.

It definitely sounds very interesting. Does Beehive offer any other products other than SME Finance?

Yes we do. We have recently launched several new products to broaden our range and offer a variety of financial products and features for both businesses and investors. Some of our recent products include:

Invoice Finance: The new Invoice Finance product helps SME businesses boost their working capital and improve cash flow, by unlocking the value of their accounts-receivable to ease the dual challenges of late payments and rising inflation.

Invoice financing, is a rapidly growing tool for SMEs to manage cash flow by closing the gap between the moment a business issues an invoice and when it receives the actual payment. Businesses will be able to list invoices that are due within 60 to 120 days and receive financing within 24 to 48 hours at rates starting from 0.75% per month, dramatically below alternative means of finance.

Secondary Market: Listing on the secondary market allows investors to release their invested funds before they reach their full term by transferring the outstanding capital to another investor on Beehive. The investors who hold parts of financing facilities related to a business with a specific rate, can transfer their finance parts on the secondary market to other willing investors.

Diversification+: Is a tool that enables investors to maximize their potential returns by setting their own bidding criteria so that bids are automatically placed on their behalf when new businesses go live on our marketplace. It’s basically the easiest way to invest in Beehive with minimal effort.

Marketplace: Investors bid to lend specific amounts at preferred rates. On the Beehive Marketplace the offers to fund the businesses with the highest rates get “bumped” by lower rates as soon as the financing request is at 100% within the 2 week auction period. As investors place more bids, competition drives down the average rate. We certainly see a lot of strong competition between investors bidding to fund businesses in the last few days before they close!

It is very noticeable that Islamic investors have been investing significantly in the region. Is investing in Beehive sharia compliant?

Yes, we have recently introduced a sharia compliant solution in order to meet the needs of Islamic investors. Peer to Peer or ‘Marketplace lending’ as it is also know, aims to build a community of investors and businesses where risks are shared and capital is channeled into real economic activity; Islamic finance is based on similar principles.

All “Beehive Sharia Compliant” finance requests are processed under a “Commodity Murabaha” structure, using the UAE based award winning “DMCC Tradeflow” Commodity Murabaha platform operated by the Dubai Multi Commodities Centre. Any finance requests that do not comply with the principles of Sharia are processed as a conventional loan structure. Investors can specifically identify and select Sharia compliant finance requests on our platform.

 What makes Beehive services different from the banks that lend to SMEs?

By using crowdfunding technology to drive down costs, Beehive is able to pass on the benefits and savings to both SMEs and investors. Our role is to ensure a direct connection between investor and SME, ensure the whole process is faster and that both parties optimise their rates. We also rigorously examine the risk profile of the businesses and ensure repayments are made as agreed.  Through a simple application the Beehive platform helps business access faster and flexible finance achieving a lower rate than conventional banking finance and without penalties for early repayment. The beauty of peer-to-peer finance for investors is that they can invest small to large amounts directly into multiple businesses, which gives better returns, diversifies their portfolio, spreads risk and in addition they get monthly repayments.

If a business is seeking funding, what are the criteria for getting listed on Beehive’s platform?

Beehive undertakes thorough due diligence on each business listed on the platform. For companies to be listed on the Beehive platform they need to fit to a certain criteria. For example companies need to be UAE registered with an annual turnover above AED 2.5 million and have been in business for a minimum of 2 years. Companies also need to provide 12 months bank statements for all company accounts.

How many business got funded on Beehive so far? Can you give us examples of firms that have tasted success through Beehive funding?

Beehive has funded 15 businesses since launch with a total around AED 5 million. We’ve seen some excellent SME clients get funded on the platform including pixelbug, Coffee Planet, Snoopy Pets and Italian Food Masters to name a few.

From your experience, can you provide any tips for businesses looking for more funding?

Consider how much finance you’re looking to raise, for what purpose and over what term. Always make sure you can service the repayments rather than over-stretch your business. At Beehive we specifically support SMEs that’s why there are no early repayment charges so businesses can be conservative knowing there is flexibility. Finally, be sure to make your business strengths known. This doesn’t just refer to financial information, a strong leadership team or a unique process or skill in your business can really set you apart and appeal very strongly to potential investors.

Source: Business Insight April

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