Faster finance for SMEs, and simpler too (Sponsored)

Meet Niall O’Grady, the new face at the helm of Ireland’s largest peer-to-peer lender to SMEs.

Linked Finance, Ireland’s first and largest peer-to-peer lender, can offer borrowers decisions on loans of up to €250,000 less than 24 hours after receiving their documents. This astonishing speed has been achieved through a combination of the lender’s systems and ethos and its inclusion as a lender under the Government’s COVID-19 Credit Guarantee Scheme.

“We offer an alternative to the main banks,” Linked Finance Chief Executive Niall O’Grady explains. “Because we are smaller, we have to be better. We’ve got to have a simpler process and make faster decisions. The Credit Guarantee Scheme also gives Linked Finance not only the endorsement of one of the main Government support schemes to SMEs, it also allows us to offer more competitive rates in the market. Ultimately while this helps, we must still strive to be the best at customer service.”

The company has been providing finance to Irish SMEs since it was set up in 2013. Its business model sees retail savers and investors and financial institutions put money into Linked Finance, which the lender then filters out to good-quality SME loans.

“The business was trading and growing very successfully over the years until we hit a bump in the road last year,” O’Grady notes. “The appetite for debt among SMEs reduced considerably as a result of the COVID-19 pandemic. Our business halved between 2019 and 2020, and our objective now is to get back to 2019 levels. We have already seen a strong rebound this year. That’s been helped by a couple of things. Being approved as a lender for the Government’s COVID-19 Credit Guarantee Scheme was a major boost. 80% of the loan is guaranteed, which helped us reduce our rates and become more competitive. It’s been fantastic, and the response from customers is great.”

The other driver is service. “As the new guy, when I arrived, I spoke to many of our customers over the last few months. They told me that they are often very disappointed with the pace of decision-making from some banks and the complexity of their process. So, an alternative like Linked Finance that simplifies the process and makes decisions quickly fills a gap in the market.”

The company lends to a broad spread of sectors, including retail, manufacturing, professional services, solicitors, accountants, wholesalers, car dealerships, and much else besides. “Professional services firms make up the second-biggest category of SME lending for us,” O’Grady elaborates. “Also, 50% of our business comes through the partner channel – accountants, business advisors, brokers. The other half comes directly from customers who apply by phone or online. They come to us because we offer a faster, simpler process and a better service. we see both sources of business growing strongly in the coming years.”

Non-bank lenders may be unusual in Ireland but are quite common overseas, he adds. “Ireland is pretty unique in that more than 90% of SMEs here still go to the banks for finance. In Europe, non-bank lenders have grown faster and can account for more than 30% of the market. Ireland needs more alternatives, particularly now that Ulster Bank has announced its exit. More competition in the market requires more traditional bank and new non-bank lenders. The country is only starting on that journey, and Linked Finance is well-positioned to play a big part in that.”

The loan application process could hardly be more straightforward. “We only look for three pieces of information – accounts, bank statements, and evidence of tax compliance. If we have any questions, we get back to the borrower straight away. Our credit committee meets daily to facilitate quick decisions.”

He points out that the application has almost invariably gone through a fairly rigorous assessment process before it gets to Linked Finance. “A lot of SMEs in Ireland are family-owned, and business opportunities tend to have been discussed long and hard before deciding to look for a loan. They are agile businesses, and they expect their financial services partners to be agile in process and decisioning. We have partnerships with accountants and brokers throughout the country. They tend to add value to the application’s quality with well worked out propositions and well-made business cases. They deserve a simple process and a fast decision.”

On the topic of accountants, O’Grady highlights the crucial importance the profession plays in supporting business owners with all aspects of managing their business and helping them access finance. “Growing and deepening our partnerships with business advisers is a key part of how we will grow the business in the next three years. These professionals know the businesses and their owners inside-out and are in a great position to advise their clients on how to source finance to meet their needs.”

Decisions are not always positive, of course. “We may offer a smaller amount than sought or advise the applicant to come back in six months when they’ve strengthened the business or displayed greater evidence of ability to repay. What we don’t do, however, is string this out over several weeks. Accountants and their SME clients deserve fast feedback.”

Interest rates on loans have come down significantly of late. “Our rates start at 4.75% for A-rated lowest risk loans and average out at 7.75%. That is almost 1.5% lower than six months ago, and the Credit Guarantee Scheme has certainly helped there.”

Over the years, Linked Finance has advanced €150 million in loans to 4,000 SMEs around the country, with the money coming from a mix of private and institutional investors. “Thousands of people give us their money to invest in SMEs. They invest anything between €150 and €20,000 with us, and the average is just under €1,000. We also have institutional investors such as European banks who invest with us. Our retail investors and savers are very loyal and are committed to supporting Irish businesses to succeed. This gives us a very stable line of funding.”

According to O’Grady, peer-to-peer lending can also give people a personal connection to a loan, which can be quite powerful. “People can invest with us in one of two ways. The first is known as ‘auto-bid’, where the investor selects the loan category they wish to invest in and the term. We divide loans into quality categories, and loan terms can vary from one to five years. In an auto-bid scenario, the investor’s money is allocated automatically when the specified loan type arises. That gives the investor a personal connection to the business, and they can keep an eye on its progress if they wish.

“Some people put money on the platform and wait until an exact proposition comes up. They then bid for that, but we are finding that more and more investors are using the auto-bid facility,” O’Grady adds.

But there is more in it than just a good feeling for investors. “People like to see their money doing good. They are participating in the growth of small businesses and supporting Ireland’s recovery. They also get a superior rate of return, up to 5% or 6% depending on the SME’s performance. As you can expect, there is a level of risk to their capital if a business defaults on their loan, but it is a fantastic proposition to get a good return and help out the local community these days.”