Lendflo — SME financing made easy
Lendflo unlocks liquidity for small businesses by bridging the gap between real world assets (invoices) and digital tokens. According to Chris Smith, Co-Founder and Chief Executive Officer, there is USD 27 trillion of wealth trapped between purchase orders and payment for the goods, a cash flow gap that needs to be financed for corporations to sustain their operations, which is especially hard for small- and medium enterprises (SMEs).
Invoice financing is used to unlock the value of outstanding invoices, but this service is not typically offered to smaller SMEs. In fact, corporations with turnover in excess of approximately USD 13m (GBP 10m) achieve more than 20% of total financing through invoice financing channels, while for small enterprises with turnover between USD 3m and 13m (GBP 2m and 10m), this number drops to 12%, and for micro enterprises with less than USD 3m (GBP 2m) in turnover, it is a mere 2%, since the regulatory and technology barriers make invoice financing too expensive and cumbersome for these companies. Capital requirements make serving SMEs unprofitable, SMEs tend to have lower (or no) credit scores that increase the cost of money, and invoices suffer from an illiquidity premium as they are costly to trade.
Lendflo looks to overcome these challenges by establishing a digital invoice financing platform that employs a lightweight exchange business model, provides credit enhancement through its own proprietary credit scoring algorithm, and creates a liquid asset class by tokenizing the security interest fn the invoice.
- SME uploads business performance data and invoice
- Investor deposits capital and sets risk preferences
- Machine learning credit scoring model prices invoice
- Matching system matches investor capital to invoices
- Investor capital advanced to SME
- Investor receives tokenized security interest in individual invoice, which can be held to maturity or sold in the market to another investor
The project roadmap comprises three phases. First, by the end of 2018, a peer-to-peer platform with an internal secondary market will be delivered.
- Early liquidity provided by institutional investors and crypto holders
- Investors hold portions of individual invoices through an ERC721 token
- Internal secondary market provides some liquidity
Second, during 2019 the business will scale to allow asset pooling for increased liquidity.
- Individual assets pooled together and tokenized bonds issued
- Bond tokens sold OTC and on exchanges — LSE Turquois, Malta Exchange, Polymath, 0x
- Pooling increases fungibility which increases market depth
Lastly, in 2020 and beyond, automated trading & processing will be implemented.
- Development of a truly automated security token
- KYC/AML/general compliance embedded in token for ease of trading
- Interest payment in recognized stablecoin to reduce backend processing cost
So far, the Lendflo team has made great progress, with participation in two accelerators, a proof-of-concept that can be demonstrated, and initial demand and supply established on the platform. Current investors include well-known accelerator H-Farm, Axiomity AG, and Advanced Blockchain AG. The team is currently looking to raise GBP 500k at a valuation of GBP 3m from traditional venture capital and private equity firms (Disclaimer: this article does not constitute and advertisement nor investment advice).
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