The fintech startup helping SMEs in the Philippines get access to credit

(From left) Christopher Burgess, vice president for risk; Patrick Lynch, CEO; and Tony Ennis, chief technology officer / Photo credit: First Circle

Small and medium-sized enterprises (SMEs) are an important part of the Asian economy, making up 98% of all enterprises in the region.

And yet the Asian Development Bank (ADB) reports that SMEs often find it difficult to access formal credit – their very lifeblood.

According to the ADB study, only 18.7% of total bank lending had gone to SMEs in the region as of 2015.

In the Philippines, where SMEs comprise 99.6% of all establishments, the lack of credit access forces many business owners to secure loans from alternative sources, which charge interest rates of up to 20%.

That’s why Patrick Lynch, formerly vice president at financial management platform CompareAsia Group, founded fintech startup First Circle in 2015. The Philippine-based startup aims to make it easier for SMEs to borrow capital through its website.

Since its inception, Lynch’s company has raised US$28.5 million in funding, placing 15th on CB Insights’ March 2019 list of best-funded Asia-Pacific startups. Lynch, who is also First Circle’s CEO, said the startup is processing “thousands of transactions each month.”

The product

Through First Circle, SMEs gain access to short-term financing.

“Typically, the way that B2B transactions work is if I deliver something to my customer and issue them an invoice, they pay me 60 to 90 days later. My cash is locked up in this instance,” explains Lynch. “If another customer comes to me and gives me a purchase order for my product, then the challenge is how do I meet that demand?”

All First Circle’s clients need to do is open an account and then have it verified by sending requirements, including a company ID, business certificates, and historical transactions. They also have to present financial documents – such as an invoice or a purchase order – to show what has to be funded.

Once the verification checks out, the loan amount is released. The process generally takes a few days – faster than borrowing from banks, which take months to process a loan, says the CEO.

One of the reasons for this quick turnaround is First Circle’s use of data analytics. As customers use the platform, the startup gains access to loads of information, which it can then use to streamline verification and underwriting procedures.

“As we interact with [our customers] continuously, our confidence and our assessment of their business just gets greater and greater,” says Christopher Burgess, First Circle vice president for risk.

Data also informs their pricing. When customers access the capital, they are charged a fee, which according to Lynch, depends on “a whole host of factors.” These include the type of document presented, First Circle’s relationship or familiarity with the SME, and the loan applicant’s clientele.

Competition from P2P lenders