How to disrupt SME finance

While working in private equity, founder and CEO Alex Fenton believed that some growing businesses weren’t achieving their ambitions due to cashflow problems. So, aged 25, he decided to disrupt the invoice factoring market. It’s a type of finance where companies raise capital by selling their accounts receivable to a third party for a fee.

Usually offered by banks and their commercial finance arms, invoice factoring hasn’t always been available to smaller growth companies. “The UK banks are relatively hamstrung by a ‘computer says yes, computer says no’ policy,” says Fenton.

Banks that offer invoice discounting tend to require businesses to post two years of profitable accounts and often impose restrictive covenants.

Making it accessible and simple

Also, finance providers have traditionally tied companies into long invoice factoring contracts, says Fenton. “What we’re doing is allowing cash-strapped companies to draw down from our facility when they need to,” he adds.

GapCap allows companies in all sectors apart from construction – due to the industry’s repayments uncertainty – to fund an individual invoice or several a day.

“If you have a £10,000 invoice, we give you 80% against it on the day that you raise the invoice,” explains Fenton. The risk factors are all automated by proprietary software, speeding up the process. When the debtor pays, GapCap is paid the remaining 20%, which it then pays to the client minus its fee, he says.

Once you know where to look, actually finding the money is less difficult than finding the place to look for it in the first place.

Alex Fenton, GapCap

Always raising debt capital

“Because the product we supply is money,” says Fenton. “Everything revolves around raising money pretty much all the time.”

GapCap has raised debt from a family office, multiple private individuals and hedge fund managers on their private accounts. As the company scales up, it needs to continually raise debt, and will be looking to institutions to expand its capital supply.

The access to capital challenge may not be so challenging in reality. “Once you know where to look, actually finding the money is less difficult than finding the place to look for it in the first place,” says Fenton.

But every financial services company comes with its risk warnings. Fenton says being exposed to a bad debt or inertia taking grip and slowing the company’s growth are his two biggest risks.

Striking a balance between investors and clients is always a challenge. “The biggest problem that we have is that we’ve either got too much money or too much business,” he says. “And it happens one after the other relatively quickly.”

Leveraging invaluable finance data

Already, its proprietary risk management software gives customers real-time finance decisions. Fenton says the company is looking to enhance its offering with artificial intelligence-driven systems to manage applications and contracts.

However, the data that GapCap has collated on cash-hungry, growing SMEs will be invaluable inputs into the company’s risk-management modelling, says Fenton.

“As we’re talking to maybe 50 businesses every day about their individual problems, if we haven’t seen the cash problem that someone’s having, then no one has,” he says.