Ask any small-scale entrepreneur in the Philippines what three things he needs for his business to survive, and “sources of funds” would definitely be on top of that list.
Banks, everyone’s primary go-to when it comes to funding, do not seem to help enough. Only 39 percent of the nation’s small and medium enterprises (SMEs) are funded by banks. Meanwhile, personal funds, often limited, remain to be a main source.
Providing a Solution to Small Businesses
Acudeen CEO Mario Jordan “Magellan” Fetalino III knows this pain point first-hand as an entrepreneur. “In my previous company,…there was a point when we only had 15 days’ worth of cash on hand, and the next receivable was yet to mature in 45 days. At that time, I was eating only biscuits everyday because whatever cash I had left was already earmarked for overhead expenses,” he said.
Today, Magellan’s new startup aims to plug the gap when it comes to financing business operations. This year’s Philippine winner in the Seedstars competition held in Manila in May 2016, the company Acudeen offers SMEs an alternative when bank financing is not possible: Access to funds via its invoice discounting facility.
Acudeen’s mechanism is straight-forward: Eligible SMEs upload online their commercial invoices that mature in 30-90 days. Acudeen asks for a discount rate on these invoices of anywhere from 8 percent to 14 percent and auctions the invoice to financing companies, banks and high net-worth individuals. Once a winner is declared for the bid, an SME gets the cash from the sale of invoice in minutes.
Let’s Talk Financing
How exactly can Acudeen help fledgling SMEs? Business in the Philippines caught up with its CEO via email, who gladly explained the company’s value proposition.
BITP: While banks’ loan requirements are tough for most fledgling companies, they have products such as no-collateral personal loans. How is invoice rediscounting superior to Philippine bank’s personal loans?
MJF: No-collateral personal loans may be easy to access, but have you seen the annual percentage rate (APR) of these loans? These loans have really high interests —because they are not secured! Some banks (and these can be seen in data provided by Bangko Sentral ng Pilipinas) even give as high as more than 100 percent APR. Best example I can give is from my own experience. I was charged a 15 percent/month interest (180% per year) years ago for a personal loan when I had cashflow problems with my business.
BITP: Acudeen targets small and medium companies. However, 90 percent of Philippine companies are micro enterprises—or those with assets of P3 million or less. Can micro businesses be part of Acudeen’s clientele?
MJF: Yes, they can! Our model essentially makes financing of receivables available to companies despite their size as long as they have valid invoices from payors (issuer of invoices) of good standing. Currently, we are accepting invoices from payors that are participants of Dun and Bradstreet, but we plan to expand this when credit data becomes more accessible.
BITP: Any tips on how micro enterprises can be eligible to avail of Acudeen’s financing option?
MJF: Do not hesitate to deal and do business with multinationals/big corporations. I know they pay in 30-90 days, and that’s why we’re here: To help you deal with the big players in town by boosting your cashflow through our platform. Get those big contracts!
BITP: Acudeen plans to offer its services in Asia. Why start with the Philippines?
MJF: The Philippine market is ready for the service. Many Filipinos have been hit by the entrepreneurship bug and businesses are cropping up. It may be the same for other emerging markets around Southeast Asia, but setting up a company like ours requires a strong network in multiple sectors and a deep understanding of the regulatory framework. As Filipinos, we might as well start in a country where we are already established and where we already have a deep understanding of the market situation.
We also considered that of the over-1 million SMEs in the Philippines today, only 10 percent have access to bank financing.
BITP: On a different note, as a startup, what does it mean to be a Philippine winner of a global pitching competition?
MJF: Being a Seedstars winner is a great validation. The fact that people believe we can impact the world is a great deal to us. Businesses should be sustainable and of course profitable, but when you know you are solving a huge pain point, there is no better feeling. I’ve always joked to my friends that I want to have a statue in EDSA in my lifetime.