Modern innovation and technology startups often aspire to disrupt existing market practices in order to establish more efficient and rational operational models and market environment. To achieve their visions, they must have the right market knowledge and business experience and then apply practical technology to translate ideas into reality.
HKSTP incubatee FundPark in the Incu-App programme is one of those that puts theories into practice. Its co-founders were bankers and had seen their fair share of inequitable trade financing negotiations between small and medium enterprises (SMEs) and banks, and perceived an opportunity for their venture.
Raising HK$500 million for SMEs
FundPark provides two forms of financing rarely offered by banks – purchase order financing and invoice financing. They serve not only as simple and convenient financing means for SMEs, but also generate return on investment (ROI) for institutional investors. In the two years since the company launched its services, it has raised more than HK$500 million to help a host of SMEs flourish.
FundPark’s co-founder and CEO Anson Suen says that banks tend to have high thresholds for risk management, and they focus on turnover history and collateral when assessing loans. These criteria disadvantage innovative startups and SMEs from the outset. Worse still, banks and financial institutions have become even more cautious in lending after global financial crises led to stricter international regulations on risk management, such as Basel III. Those rules heavily favour bigger enterprises over smaller setups.
Banks’ risk control not in tune with SME needs
Banks should indeed be cautious, but Anson thinks it’s a shame that many viable businesses with promising performances and growth potential fail to get a bank loan. Various Asian cities, Hong Kong included, thrive by having SMEs. Innovative startups are hopes for future economic growth. As such, helping SMEs grow is good for the society as a whole.
Anson estimates that the gap between the demand and supply of SME financing is up to US$2.1 trillion to $2.6 trillion globally, and a large number of SMEs don’t get adequate funding. In Hong Kong, where there are 170,000 SMEs, it is estimated that HK$60 billion worth of financing applications are turned down by the four leading banks every year. On the other hand, there are many cash-rich organisations interested in meeting SMEs’ capital demand. The only missing link was a reliable platform or channel to connect the parties. This is where FundPark steps in.
Innovative and thorough risk assessment model
As the company adopts an unconventional means for corporate financing, it has to have a sound risk management model covering all bases. Anson says purchasing orders and invoices can reveal a lot of information. They conduct due diligence on loan applications, applying its proprietary risk assessment model based on multiple criteria, including the company’s background, the strengths of its suppliers and buyers, and the outlook of the industry and the market. Observations from personal interviews and social media footprint are also added to the mix to round out the assessment and data analysis. Despite such a comprehensive process, it only takes as short as a day to approve an application, much faster than the three months it usually takes to get a bank loan. This is no doubt a boon to SMEs that need a liquidity boost. After an application is approved, a third-party trustee will handle the release of the funds, perhaps by directly paying manufacturers on behalf of an SME applicant to kick-start production and to ensure the funds are used as intended.
Anson explains that they are fully aware that risk management could make or break FundPark’s business. The company’s risk assessment model involves more than 60 parameters. Different parameters, such as revenues and bank statements, will carry different weights in the evaluation. As well, FundPark is partnering with a large international credit rating database and is collecting global supply chain information. A year before the startup went into operation, the team had begun all preparatory works on credit risk management to establish a solid base for the business.
Marching into overseas markets with high potential
FundPark has found its footing and is expanding beyond Hong Kong to Taiwan and Southeast Asia. Anson says that markets are picked based on three factors: that the overall outlook for account receivables is good, the local financing system is insufficient, and that it is an export-led economy. Such markets present opportunities for FundPark to muscle in.
FundPark became an HKSTP incubatee in 2017, and has since received support and help in various areas. It has gained valuable expert input when introducing its financing platform, and has connected with potential partners and clients within the ecosystem. Through talent matching, the company has also accessed human resources in the ecosystem and has since grown to have 30 people in the team, Anson says. He expects the company to continue to grow in the ecosystem fostered by HKSTP and intends to introduce more disruptive financial services to help fuel Hong Kong’s economic growth.