Greg Moshal was 16 years old when he set up his first business — leasing pool tables to schools — in South Africa, the country of his birth. He later moved to Australia and like many entrepreneurs, quickly found out the difficulty of securing bank funding.
“It took maybe six weeks to go through the process of applying for a loan and most likely they would say no,” he says. “It was clear the loan products for small businesses were just not good enough.”
Mr Moshal, now 35, and his joint chief executive Beau Bertoli, 34, are aiming to solve the credit crunch faced by some of Australia’s more than 2m small and medium-sized businesses, through their Sydney-based online lender Prospa.
Founded in 2011, Prospa tops an inaugural list of high-growth Asia-Pacific companies, compiled for the FT by research company Statista. The lender delivered a compound annual growth rate in revenues of 445 per cent between its 2013 and 2016 financial year.
Last year Prospa passed a milestone of providing more than A$500m ($385m) in loans to 12,000 businesses. “We know how difficult it is to apply for finance and I think that has given us a greater understanding of what small businesses are looking for,” says Mr Bertoli. “Incumbent banks tend to be good at providing consumer products and finance to larger businesses but their SME offerings are not as good.”
The company offers loans of between A$5,000 and A$250,000, over a term of three to 24 months, with no security required for amounts of up to A$100,000. Its platform enables business owners to apply within 10 minutes, receive approval on the same day and funding within 24 hours.
“We aren’t necessarily cheaper than a bank but we offer speed, convenience and more access to credit,” says Mr Bertoli. Prospa funds its loans by securitisation for institutional investors.
Annual interest rates on Prospa loans vary depending on risk but typically start at roughly 12 per cent and stretch into the mid-20s.
“A doctor’s surgery that has been in business 20 years and is applying for a A$100,000 loan for an extension has a different credit risk profile than a person in their mid-20s who is aiming to set up a restaurant,” says Mr Bertoli. “We price risk very differently and offer about 85 different price points to businesses.”
The platform assesses more than 450 data points, much of that from third-party sources, for an insight into borrowers’ creditworthiness.
Prospa’s growth has been supported by venture capital backers, with AirTree leading a A$25m funding round last year that valued Prospa at A$235m. The funds enabled the lender to boost its staff to 165, build a direct distribution channel and sign up 7,000 intermediary partners.
“We backed Prospa because we saw a gaping hole in Australia’s SME lending market,” says Craig Blair, AirTree’s managing partner.
“As the clear market leader in a A$70bn lending market with a history of profitable growth, there is no reason why they cannot become a multibillion-dollar company in the next few years.”
Prospa recently appointed UBS and Macquarie Capital to test investor appetite for an initial public offering later in the year. “This is a business that requires capital and one option is to go down the public path,” says Mr Moshal. “We are currently exploring the best options.”
The company faces tough competitors in Australia’s big four banks, either directly or through start-ups. National Australia Bank has launched QuickBiz, which also provides unsecured loans to SMEs.
Brian Johnson, analyst at broker CLSA, says challengers such as Prospa lack scale and client diversification. “With such a prolonged period of ultra-low interest rates, that lack of truly diversified portfolio could be a major issue should rates rise,” he says.
Prospa’s founders reject suggestions that the unsecured nature of their lending could leave it vulnerable. “The Australian economy is not growing at an overheated rate and there is less of an inflation risk than in the US so the outlook for interest rates here is pretty favourable,” says Mr Bertoli. The company does not publicly disclose the exact rate of non-performing loans but he says it would be in the “low single digits”.
For now, Prospa’s focus is domestic. “There is a large under-served customer base in Australia and that is our primary focus — there is plenty of opportunity to grow here before we look to other countries,” says Mr Bertoli.