Becoming a Business Lending Trailblazer
Backd helps small businesses grow and scale through short-term capital injections—a feat nearly impossible with traditional lending sources.
Small business’s access to capital remains a huge barrier to growth. Banks are tightening credit availability under regulatory pressure at the same time as small and midsize ventures are seeking to scale their operations. Backd has stepped into that void to help growing companies obtain the capital they need to expand, says CEO Xan Myburgh, landing itself near the top of the 2023 Inc. 5000 list.
Given that 99.9 percent of U.S. businesses are categorized as small—meaning having fewer than 500 employees—and were more than 33 million strong as of 2023, per the U.S. Small Business Administration, the market for small business lending is massive. At the same time, “banks don’t really play in this space,” Myburgh says.
Myburgh tested the concept for his company in his native South Africa in 2014, where small business funding opportunities are scarce. Backd’s launch in the U.S. in 2018 uncovered similar market dynamics.
“Our average client has $5 million in annual revenue, our average deal size is about $250,000,” says Myburgh, “and we’ll go up to $3 million.” However, the range of business sizes the company serves is wide—up to as much as $300 million in revenue.
OPPORTUNISTIC CAPITAL
“We’re not permanent capital,” explains Myburgh. “We’re opportunistic capital, from the entrepreneur’s perspective, meaning that they have some opportunity they can undertake” with sufficient funding. Those opportunities could include buying out their business partner, expanding their company through an acquisition, ramping up inventory levels before a busy period, buying equipment, or renovating a workspace, among other uses, Myburgh says.
Backd is for a short-term opportunity, says Myburgh, “where [the business] needs to move pretty quickly, and they need a capital injection. The benefit is that it’s not dilutive.” The payback period averages 12 months but can be as long as 18 months.
And business is booming at this tech-enabled venture. In 2022, Backd was underwriting an average of 200 applications a day. Today, “we’re doing about 450 a day,” Myburgh says.
PARTNERING FOR PROFIT
To connect with potential small businesses in need of funding, Backd has established new divisions within the company to generate deal flow. A relatively new division is its direct sales channel, which focuses on talking to entrepreneurs directly rather than through brokers and independent sales organizations.
This new direct division is in addition to the company’s “focus on banking partnerships, partnerships with mergers and acquisitions (M&A) groups, private equity firms, and later-stage venture capital,” Myburgh says.
Backd biggest challenge is market awareness, Myburgh says. “The problem with alternative lending is it’s a relatively new industry, and there’s not a lot of knowledge around which companies do what,” he explains. “A little bit of brand awareness could go a long way.”
“Alternative lending is very much a big and growing industry,” Myburgh says. “Banks are turning into utilities; they’re not in the business of servicing or capitalizing small to midsize businesses, and we’re happy to fill that gap.”
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