Westpac backs Valiant to find alternative business loans
Westpac Banking Corp has entered into a referral deal with Valiant Finance, a start-up business loan broker that is making pricing in the business lending market more transparent as it meets a growing demand from companies seeking alternatives to big bank finance.
Valiant has formed a panel of 70 lenders, including non-bank fintech lenders such as Prospa and Moula, and its platform manages the entire loan application process. It also creates transparency around interest rates, including by standardising their disclosure, which will exert pressure on higher cost fintechs to be more competitive on price.
In an indication that big banks are trying to think more broadly about how to facilitate business access to finance, Westpac will send customers, or potential customers, that it can't bank – because, for example, they fall outside its lending criteria – to Valiant, which will assess options in the non-bank market using a panel of mutually agreed lenders.
The emergence of Valiant comes as the banking royal commission raises questions about big bank treatment of business borrowers, including their demands for property security, and as senior chief executives express concerns the Hayne inquiry will harm the economy by starving business of capital needed to grow.
Valiant's co-founder Alex Molloy said the royal commission had made lenders, including fintechs, “more aware of the quality of customer inquiries they need to make and the products they recommend”. He said it had also made banks aware they needed to do more for customers they had to turn away, especially those with existing banking relationships. Valiant is keen to work with other banks on referral deals similar to the one struck with Westpac.
The deal comes as new small to medium enterprise (SME) lender Judo Capital, which expects to be awarded a new banking licence from the prudential regulator by the end of the year, has found SMEs have unsatisfied demand for capital worth $83 billion. The figure comes from a lending report to be released on Tuesday, conducted by East & Partners, that also found half of all small businesses are unsure how much their bank would be willing to lend to them.
Valiant has just completed a $4 million, series A fundraising round – investors include Westpac's VC fund Reinventure – to allow it to deepen relationships with other brokers, including by embedding its technology into their customer relationship management systems.
The funding round was led by Carthona Capital, whose principal Dean Dorrell will join the Valiant board. Reinventure, which also backed Valiant's seed raising, was joined by Full Circle Venture Capital and Black Sheep Capital.
The Sydney-based start-up, which has 30 staff, has funded more than 2000 loans through 46 different lenders. A typical loan is for $50,000 and is used for working capital. It has been working with brokers directly and via a relationship with Yellow Brick Road Group. In October, it will begin integrating its platform into the CRM software used by Connective, which manages 4000 brokers.
All of the major banks are already members of Valiant's lending panel. Borrowers on the platform have access to loans with interest rates from 4 per cent (offered by the majors when customers pledge property security) up to 60 per cent per annum. Most loans are priced according to the business's risk.
Valiant's technology standardises the disclosure of interest rates offered by lenders on an annualised basis inclusive of all costs, to help borrowers to make a like-for-like comparison. Valiant has higher cost, unsecured lenders like Prospa on its platform, because it says their products have a place for businesses with relatively little history and less detailed documentation who want fast access to capital.
“We like having them on our panel, but we place their option against the full universe of other offerings, which forces lenders to define and target their product to the customer segment with a particular level of risk,” Mr Molloy said. “But if you qualify for a lower rate, that will be discoverable through the platform.
“Without this transparency, lenders have been able to charge high rates across the board. Sometimes that is appropriate, but sometimes high rates have been charged to loans that are much less risky. Our platform allows lenders with low interest rates to be heard because there is more transparency.”
Westpac's deal with Valiant comes as it ended its referral relationship with Prospa when a contract expired at the start of June this year. Commonwealth Bank of Australia has also ended a referral agreement with Nasdaq-listed business lender OnDeck.
Valiant is paid an upfront and trailing commission by banks, similar to how they pay mortgage brokers, while non-banks providing unsecured finance often just pay an upfront commission due to the short terms of the facilities.
Initially, it was a matching and ranking service, but it now manages the loan application process for customers. It does this by conducting an assessment of which lender is best for a borrower after they make a paperless application, based on automated analysis of bank statement information to form a view on serviceability and credit worthiness. This is then provided to the lender for assessment.
Valiant is also the provider of education to small businesses under the NSW government's access to finance program, Business Connect.