Asia Pacific’s Next Big Finance Opportunity: Giving Credit Where There is None

At a glance, it could be argued that small business owners have more choices than ever to get the working capital they need, as FinTechs, neobanks and legacy lenders all compete to offer loans and lines of credit. But available options are not always viable options, as the requirements to actually get approved for funding vary widely and disqualify many small and medium-sized business (SMB) borrowers — while discouraging countless others from even applying.

“We tend to look at Asia as this big homogeneous region, but in fact it’s really many, many fragmented markets, which means that very different regulatory requirements in each individual city and each country,” said Zetl Chief Executive Shan Han. “So that’s part of the reason why the FinTech revolution has perhaps dragged a little here, compared to the west.”

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Han thinks this slower rollout of modern, digital financial services and solutions in Asia-Pacific has meant that, if anything, the funding gap for SMBs and SMEs in the region is even worse than it is elsewhere. That makes it a much tough environment for most small business owners, but for a startup like Zetl whose sole aim is to help struggling SMBs and startups, it’s a potential gold mine.

Han said there is huge unmet opportunity to plug the gap between accounts receivables and accounts payables, either through receivables-based or revenue-based financing.

“Legacy finance is very well suited to serving the larger companies in the region, but in the SMB and SME space, companies have really been under-backed and that’s where we’re looking to solve the problem,” Han said. “For a lot of business owners, the only options are to either to tap personal credit or sell equity. But for a fast-growing company, selling equity can be very expensive.”

The Price of Approval

While non-conforming borrowing from companies such as Zetl is admittedly more expensive than the interest rates offered by traditional banks, Han justified the premium that is charged, explaining that customers are happy to pay a little more for what he calls “purpose-suited” finance.

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“The truth is most of our clients are looking for short-term working capital financing needs,” Han said. “For most, their options are either be locked into a relatively cheap loan for the next three to five years, or you can just take financing for two months and not have to worry about having this big debt sitting on your balance sheet.”

Small businesses are often in a big hurry too, and again customers are often happy to pay a little extra for speedy service or better odds of getting approved. By its very nature, short-term financing generally needs to be accessed very quickly. Han said Zetl is able to onboard new businesses and complete know your customer (KYC) within a week, and once that’s done, it can provide them with same-day financing at a moment’s notice.

“So for a lot of customers it’s not just the cost of the financing itself, but also how much time are they spending going out seeking this capital,” Han explained, noting that companies often spend weeks or months searching and compiling documents needed to get capital rather than focusing on their own business.

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Lower Rates for Those That Digitize

To be able to finance young startups, many of which have no real credit history or report to speak of, Zetl has developed a proprietary credit model that relies on alternative data. The company has a clear “digital-first” approach where virtually all of the information collection process is automated. Zetl is not a big fan of paper-based documentation, and it makes a big effort to encourage the companies it works with to become more digital too.

In fact, Zetl is such a big proponent of helping its customers with their digital transformations, it even offers financial incentives if they’re willing to accelerate those initiatives.

“If they can move to, for example, a cloud accounting software that we integrate with, then we can definitely offer preferential rates,” Han said. “We use these sorts of carrots to try and encourage our prospects and customers to adopt a more digital method that not only helps us, but definitely helps them in their operations too.”