Special Report: Fintech lending platform Lumi has tapped existing equity investors for another $8m to finance its expansion.

The company is one of a number of new competitors filling a market niche in small business lending, and founder Yanir Yakutiel has big plans for 2019.

The latest investment follows a $31.5m raise in November, comprising a mix of debt and equity. That round included $25m in debt capital from the Arbel Fund, a specialist credit investment firm based in Israel.

Speaking with Stockhead, Yakutiel said the goal over the next 12 months is to establish Lumi as the second-biggest small business lender in the Australian marketplace.

Red hot market

For most small business, cashflow is king but historically short-term finance has been hard to find — particularly from the big banks.

In recent years, a number of new competitors have found success filling that niche. Prospa, now scheduled to list on the ASX next month, leads a crowded field which also includes companies such as Capify, OnDeck and Spotcap.

The Lumi platform allows business to borrow between $5,000 to $100,000, with repayment terms stemming across 3-12 months. To qualify for a loan, applicant companies need to have been established for a minimum of six months with annual turnover of at least $50,000.

In his assessment of the market, Yakutiel highlighted an anecdote which he said explains how the major lenders have fallen a step behind.

“The four big banks are essentially mortgage lenders. They have reasonably good corporate and enterprise banking, but they don’t have much institutional knowledge for lending to small businesses,” Yakutiel said.

“We recently funded a very solid business in hospitality; they were telling me about discussions with a big four bank to do a renovation.”

“But a few weeks after that they called me and said the bank’s been stalling on the deal — we funded them on the same day.”

Yakutiel said it highlights one of the advantages for new entrants in the market who are tech savvy and unburdened by traditional overheads such as branch outlets.

“Definitely technology is a big part of our product offering, and we established that as part of our platform from the beginning.”

Mechanics of a capital raise

The debt component of Lumi’s November raise is eye-catching in the sense that it probably wouldn’t happen in the local market.

“For structural reasons, Israel has a deeper debt capital market than Australia,” Yakutiel explained.

“Like everything else, relationships play some part. But were lucky that by the time we went to get the debt, we’d already raised the equity. So the strength and reputation of the equity investors was something that helped with the debt.”

“Ultimately, the fact we were able to raise on and offshore and diversify funding sources gives us an advantage to hedge liquidity risks.”

Unlike the debt component, both equity raises — the $6.5m in November and the additional $8m — were sourced entirely from Australian investors including Josh Liberman.

Yakutiel said that all of the company’s existing equity investors re-upped their stake in the latest fund round, with most of the $8m financed by incumbent shareholders.

Business outlook

Being a Sydney-based company, Lumi’s loan book is weighted towards NSW but it has exposure across all states and territories.

By customer, the company is “completely industry agnostic” although it excludes vice-related industries (such as gambling) along with farming and mining.

“Our credit decisioning is not designed to understand the credit risk within those industries,” Yakutiel said.

Having established a diversified revenue stream, Yakutiel said the next year is all about scaling up.

The company is in the process of moving offices, and plans to increase staff numbers from 20 to 40 over the next year.

“Our goal within 12-14 months is to become the second biggest SME loan originator in Australia.”

To achieve that it will have to generate around $30-$40m in new monthly loan issuance.

And there’s every chance it will also need some more capital.

“We’ll most definitely go back to the markets in the next 12 months — both debt and equity,” he said. “We’re growing at a rate that requires us to raise additional capital, both at the working capital level and our debt funding structure.”

Eventually, Yakutiel is eyeing off an ASX listing — although not in the near term.

“Private channels more appropriate to the extent you can fund yourself, but these are big private raises for such a young company in Australia,” he said.

“The medium term view is to go into the public markets, but I don’t think we’ll be ready in the next 12 months. It’s obviously more onerous in terms of reporting requirements, and there’s a material cost to it.”

Ultimately, Yakutiel wants to position Lumi to become a one-stop shop meeting the financial needs of SME business, included payments and trade finance options.

“The long-term vision is to revolutionise the customer experience for financial services. There’s still so many pain points that should be digitised and automated,” he said.


This story was developed in collaboration with Lumi, a Stockhead advertiser at the time of publishing.
This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.