Two Irish millennials build app for fast, collateral-free SME loans

Two young Irelanders are now making a difference in the Philippines by using technology to provide bridge financing of up to P3.5 million to small businesses without collateral as a requirement in as fast as two to five days.

Patrick Lynch, a 28-year-old economics and finance degree holder from Dublin and a former investment banker in London, came to the Philippines without knowing anyone here in 2014. He previously worked for CompareAsia Group and Morgan Stanley in Hong Kong before establishing First Circle as chief executive in Fort Bonifacio, Taguig City in March 2015.  

First Circle co-founder and CEO Patrick Lynch
“In the fourth quarter of 2014, I came here from Hong Kong where I was working for a startup.  I was asked to build the emerging market business for this company and the company is now very large.  It was either coming to here, Jakarta or Bangkok.  I chose Manila, because the economy here is very strong and the people speak English,” Lynch says in an interview in Fort Bonifacio, Taguig City.

“When I got to the Philippines, I was absolutely blown away by the size of the opportunity, by the energy in Manila, by the growth in the economy, by the real sense of hope for a better future,” he says.

After a few months in Manila, Lynch realized the growth opportunities in short-term trade financing as many small businesses struggled to get loans to support expansion or meet clients’ demand. He then decided to go into bridge financing and tapped fellow Irishman Tony Ennis to establish First Circle.

Lynch believes that SMEs should be given a chance to borrow capital despite the lack of collateral. For Lynch, invoice or purchase orders are enough to qualify for a loan.

“I kinda looked around for a while at different business opportunities and realized that small businesses have enormous opportunity to grow, because the country is expanding.  The biggest challenge that small businesses face is they can’t get access to short-term trade financing,” he says.

“If you imagine a small business who has very strong clients, and maybe they sell to big, big corporations on 60, 90 or 120-day payment terms.  In some ways, it is a great thing because it is a big order.  In some ways, it is very, very hard because then they have to go and realize that the cash they need to buy that stuff, they are not gonna have that for 90 days.  So we help them by giving them bridge financing,” Lynch says.

Lynch and Ennis rented a two-bedroom apartment in Fort Bonifacio to start First Circle. “When we were first writing the code and trying to build the website and everything, my co-founder and I were in this two-bedroom apartment.  That was the very early days when we were trying to speak to the first clients to understand their pain points, their problems, developing the first product and while we were still waiting for the license from SEC [Securities and Exchange Commission],” he says.

“Once we got the license, we started the company I guess.  We moved into our first office which was a shared co-working space [Regus].  Then the rest is history.  Our office is now in Trade & Financial Tower and our team is 65 people now. And we are moving to a new floor for bigger space,” Lynch says.

Lynch is now the chief executive of First Circle, while co-founder Ennis serves as the chief technology officer. Lynch says while they created the First Circle website as early as 2015, the team started lending only in March 2016.  “Because it is a financing company, the filing of the papers and everything took quite some time.  The day that we got the license [from SEC] was actually on the 17th of March 2016 which is Saint Patrick’s Day.  The two founders were from Ireland and Saint Patrick was our patron saint, so we thought it was a sign of good luck,” he says.

Lynch says First Circle refers to the immediate circle of supporters. “We were speaking to a lot of small business owners back in 2015. And we were speaking to them about the pain points in their business and a lot of them mentioned that bridge financing was the pain point in their business. We were asking how they got financing, and people said sometimes they go to banks, but it takes quite a long time.  Sometimes they go to loan sharks but the rates are very high [5-6 scheme].  Then one lady mentioned that she goes to her first circle, and we were like what does that mean? But everybody else in the room knew what first circle was.  It is their friends and family.  We thought that was exactly the type of relationship that we want to build with our clients,” he says.

“We become a part of the first circle for small business or medium-sized business who wants to grow.  Our relationship in their first circle can give them all the opportunities that they need in order to become much, much bigger and to make more money, and to make more profits and to expand their business if they want, but more importantly, just to do better and make business much easier for them,” he says.

Lynch describes First Circle’s lending process as very simple.  “A customer goes to the app store [both Android and iOS] or to our website [] and they download the application.  They are prompted on the screen to submit some personal KYC [know your customer] information.  Basically, it includes simple ID, business registration and proof of address.  It only takes a few pictures of their invoice or their purchase orders and we commit to go back to people within a couple of days,” he says.  Approval means First Circle depositing the loan for up to P3.5 million to the bank account of the borrower.

“So imagine having an order from a big company, take a picture and send it to us.  We aim to approve it within a couple of days.  And that’s it.  No trip to the branch, no long queues, no lack of clarity as to whether they are in the process of approval.  It is all very obvious.  It says this is where you are, this is how long you have to wait and customers can be approved within a couple of days for up to P3.5 million,” says Lynch.

“Rates are very competitive from 2 percent per month.  When people are taking funding for two or three months, the absolute cost is actually very low at 4 to 6 percent in interest.  Maybe they are making like 20-percent, 30-percent margins.  So the cost is actually very small compared to the margins that they make. And we will commit to the customers from the moment they first complete their application with the photos through the app, to having funding in their bank account, within five days,” he says.

Lynch says their first borrowers were merchants working with the e-commerce platforms Lazada and Zalora who needed capital to fulfill the increasing orders.  “Our typical clients are businesses, with 20 employees up to probably 100 or 150 employees.  What they lack is the financial capital to just do more business.  A lot of orders are coming in and they just need help to fill more of those orders and maybe to add new clients,” he says.

Lynch says First Circle, which has international and local investors, has granted loans totaling tens of millions of dollars to businesses.  

“At the moment, we are only in Metro Manila, but we are expanding outside Metro Manila nationwide over the course of one month, particularly in the major metropolitan areas such as Cebu,” he says.

On what makes First Circle different from banks and other lending companies, Lynch mentions customer experience.  “It is very simple for a customer to interact with us, as you would expect when you are interacting with an app on your phone.  It works very easily.  It is straightforward.  It communicates and prompts you when you need to do something else,” he says.

 First Circle co-founders Patrick Lynch (right) and Tony Ennis (left) flank Securities and Exchange Commission chairperson Teresita Herbosa.
“It is just a few clicks.  It takes only five minutes to apply. You get a response within a couple of days. There is no lengthy paperwork.  Everything and all the contracts are signed through the application. The customer can nominate a bank account and we deposit funds directly to their bank account,” he says.

Lynch, who obtained a Bachelor of Arts degree in Business and Economics from Trinity College in Dublin in 2012, envisions First Circle as a driving force for how wealth is distributed in the economy.  “In the next 10 years, the economy is gonna grow.  Who earns that? That depends on the opportunities that are given. And we think that the key opportunity that is missing is finance.  That’s why we started First Circle,” he says.

“Any business who wants to grow and who wants to improve their trading position or do more orders, and they are trading with big or small companies, they should log on to, or they should go to iOS or Android app stores, download the app and it can’t be easier.  It only takes five minutes to try and they will be blown away by how easy it is,” says Lynch.

Among First Circle’s clients are medical supplies distributors, homeware distributors, supply chain providers, coconut shell dealers and electronics distributors.  Loans allow these SMEs to meet the orders of their customers.

First Circle offers two loan products to SMEs­—purchase order financing and invoice financing.

First Circle teams up with banks and is supported by venture capital firms Deep Blue Ventures, 500 Startups, Spiral Ventures, Key Capital and Accion.

It is recognized by the SEC which regulates lending companies in the Philippines. Lynch says First Circle also regularly interacts with Bangko Sentral ng Pilipinas.

Forbes magazine included Lynch in “30 Under 30 Asia 2018” list of 300 young entrepreneurs and innovators.

“With the aim of providing finance to small to medium enterprises who find it difficult to secure capital, First Circle uses available information such as social media, credit, network and cell-phone data to create credit scores to determine the feasibility of a loan,” Forbes says.

Five Filipinos also made it to the prestigious list, including Stephanie Sy, founder of data science startup Thinking Machines; pastry chef Miko Aspiras; 19-year-old video blogger Bretman Sacayanan; and Carlo Delantar, country director of non-profit group Waves for Water; and artist Archie Oclos.

Lynch hopes to expand to other Asean countries, particularly Thailand and Indonesia.  He says the goal is to create a market size in excess of $50 billion by empowering hundreds of thousands of business owners.

“What we are is a very strong friend and partner of small and medium-sized businesses.  And we are gonna be the ones to make them big businesses,” he says. 

Topics: Irelanders , Philippines , technology , bridge financing , First Circle , Patrick Lynch ,
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