Funding Societies Riding the Digital Wave in SME Financing

Traditionally in the past, SMEs fund their companies through friends and families, angel investors, or from their own retained profits.

If you are an SME in this day and age, and business is booming, you will increasingly require funds not only for inventory, salaries and  marketing, but for investing in business activities such as analytics for better decision making. If implemented and put to use in the right way, business analytics can help any organization to quickly realise their returns.

All these might look like a huge capital expense for SMEs, however, this is where  South East Asian digital financial services provider, Funding Societies, come in.

Funding Societies  provides a convenient and expedient way for SMEs to receive financing without the need to physically submit documents or make face-to-face appointments, through SME Debt Financing conducted via their online platform. SMEs can gain access to funds as fast as within a week of their application which allows them to focus on running their business.

BusinessToday spoke to Funding Societies Malaysia co-founder Wong Kah Meng, who, in 2016, started the process of applying for a digital financing license to certify the company with the Securities Commission. They were the first batch of digital vendors that were approved in late 2016.

On sharing his background, Wong said that previously he was based out of Singapore working across the region for financial services clients in areas such as strategy, risk management and operations,  touching on SME and the retail banking space, areas that he is familiar with in terms of  the market for SME financing and the kind of opportunities and gaps available in the market.

His prior experience of working for the largest banks in South East Asia allowed him to realise these gaps in the financing market as well as the opportunities present as he noticed a highly underserved segment of the market which were the SME businesses. Looking at other well-developed markets, it is a well-documented fact that SMEs are being underserved by traditional banks. This presented an opportunity  to help launch and build up these Malaysian businesses which also allowed the company to expand regionally.

Funding Societies launched in 2017 as the first platform with the largest market share in Malaysia with more than 50% market share, following the heels of the company’s success in Indonesia in 2016 and Singapore in 2015.  The company launched in Thailand more recently in early 2021.

He says, “The gap is that SMEs are neither as homogenous as a retail individual but they are not as big ticket as a corporate  customer. Hence they end up in a situation whereby they have very varied needs as a business from a financing perspective but there is no advantage for existing traditional financial institutions to remodel. In order to reach out to serve them in a way that is feasible in the long term, this is where Funding Societies can help SMEs easily with their financing needs by being digital and riding on the digital adoption wave that has been happening on the last 5-7 years.”

The digital services provider serves SMEs by providing seamless and digital access to financing, which enables SME owners to cut down on the red tape and simply submit their application and required business information for risk assessment online. No online appointments are needed in advance to visit counters and none of the hassle of getting loans approved which can take too long and sometimes prove to be unsuccessful after a long wait, which doesn’t  help SMEs who need immediate funding for fast growing businesses or to stay afloat during the pandemic restrictions.

Bank loans tend to ask for far more information and document submissions, while approval notifications can take a while when one can’t afford delays in getting financial support. SME Debt Financing on the Funding Societies platform, on the other hand, is online-based. Small business owners can finish and send off an application even within a few minutes. Traditional loan products can require 1-3 months of waiting for notification approval. SME Debt Financing normally takes one to three weeks to fulfil a loan, depending on the size of the loan.

However, benefits are not only applicable to SME owners. Investors also earn good returns and freedom of choice from SME Debt Financing.

Partnering with strategic partners- U-Mobile, Lazada and foodpanda, Funding Societies is addressing much needed microfinancing needs for this underserved segment. With the consent of the merchant, they are able to do risk assessment based on an online tracking system of payments and profits and will be able to provide quick financing as soon as two days if a customer has fulfilled the criteria.

These customers then get access to immediate financing , which could even be the first time they will have ever received financing by an investor, allowing them to pay salaries, cover inventories , and invest more into marketing and IT needs.

The majority of SMEs don’t have a business bank loan when they register with Funding Societies. This is where another opportunity comes up for them- to serve by topping up the financing they have from existing banks, as banks look at what happened in  the last 3 years and such and it may not be sufficient as a fast growing company, as they need more funds quickly to buy more inventory, secure more customer orders, invest into marketing or even business analytics, which can be hefty but worth the investment.

The criteria for financing applications with Funding Societies is easy to meet as the bar is set quite low. They manage risk by using different data points similar to  what a bank usually uses to assess credit worthiness which also helps to protect the default and delinquency risk that emerges from lending.

As long as the SME is registered with SSM , has a 30% local ownership share and has been holding for a minimum of 6 months in operations, they meet the criteria for financing.

Funding Societies will propose the most suitable kind of financing structure that works best depending on each case which allows SMEs to manage cash flow in the best way which suits their business financing needs following several types of financing solutions. Check out for  the various SME fundings available including business term financing, invoice financing, and microfinancing for your SME financing needs.

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