Dot-Com Fills online Financing Void
Network to link lenders, merchants, customers
By Thomas Hoffman
11/08/99 Although consumers can buy a toy or a book on the Web with a credit card and a click, there hasn't been an easy way for a manufacturing company to get short-term financing to buy $100,000 worth of supplies online. Even though the business-to-business market is expected to be where the big e-commerce action is -- $1.3 trillion by 2002, according to Forrester Research Inc. -- analysts said obtaining financing and credit online has been an obstacle to its growth.
That's about to change.
Next week, a Westwood, Mass.-based maker of Web-based automated credit software is launching an online network that will link merchants, customers and lenders together under the same hood. The secured Internet system, hosted by eCredit.com Inc., was designed to benefit sellers, buyers and lenders by opening up financing to a bigger pool of corporate customers. The idea is to drive more business-to-business transactions by making it easier for companies that don't have top-tier credit ratings to shop for financing that will help cinch deals .
"I think it's a great concept," said Mark DiLillo, president and CEO of Endura Plastics Inc., a Kirtland, Ohio-based plastics molding maker. Historically, if Endura wanted to buy injection molding equipment from a company such as Strongsville, Ohio-based Van Dorn Demag Corp., Van Dorn would either finance the deal through a single lending institution or Endura executives "would have to work the phones" to secure financing through a bank, said DiLillo.
"You have no idea if you're getting the best rate because you're working with one lending institution," said DiLillo.
That was true even if Endura had ordered the equipment through PlasticsNet.Com, an electronic marketplace for the $420 billion U.S. plastics industry. Endura channels 15% to 20% of its resin purchases through PlasticsNet.Com. Until now, PlasticsNet.Com could take the order online, but Endura and Van Dorn would both have to go off-line to secure and close financing for the machinery.
Now, the eCredit.com network will let companies such as Endura fill out a credit application online. ECredit will then zap that application to a group of lending institutions that are participating on the network. The lenders would respond with financing terms and offers to Endura within a few minutes, according to eCredit officials.
Endura would then be free to agree to terms with one of the lenders, print out the paperwork, sign it and then fax it back to the lender in a cycle that would take a maximum of a few hours, not the days of a typical transaction.
ECredit officials said they have 15 customers signed up for the network. They hope to have up to 20 lenders on board by year's end.
The financing and credit network "is a true market-making mechanism for us," said Nick Stojka, an executive vice president at Commerx Inc., the Chicago-based company that runs PlasticsNet.com.
Stojka and executives from other sellers who plan on using the network said the costs that eCredit is charging to route these deals are reasonable. An initial cost analysis conducted by Commerx shows that the cost of using the eCredit system "is significantly less" than what it costs PlasticsNet.Com to process equipment financing today, said Stojka.
Stojka wouldn't disclose how much his company is paying to use the eCredit service. However, eCredit is charging sellers between $8 and $25 to arrange financing for business-to-business transactions and $2 to $8 for less complex, business-to-consumer deals, said Deepak Verma, vice president of business development at eCredit.com. Lending institutions such as Fleet Leasing Inc., for example, will be charged 100 basis points on each transaction, or, say, $250 for a $25,000 loan, said Verma.
The network is also expanding e-commerce opportunities for some companies whose buyers otherwise had to use credit cards to pay for pricier items. "To date, we haven't had a methodology for offering financing to consumers on our (Web) site," said Michael West, CEO of HomePoint Corp.'s HomePoint.com, a Greenville, S.C.-based home furnishings merchant. West said his company examined other financing networks, but the speed of eCredit's system was the determining factor.
Unique Network
Analysts familiar with the eCredit network said there are no financing networks like it on the market. "It's amazing stuff -- there are no direct competitors," said Carol Baroudi, an analyst at Hurwitz Group Inc. in Framingham, Mass. By using the Internet, said Baroudi, "there's now an aggregation of lenders who are willing to assume credit risks" that online sellers previously had trouble accepting or couldn't accept, said Baroudi.
Dan Sholler, an analyst at Meta Group Inc. in Stamford, Conn., said he doesn't think eCredit will face any significant scale issues with its system. The heart of its Web-based credit authorization system is already used by blue-chip companies such as Procter & Gamble Co. in Cincinnati, Microsoft Corp. and Intel Corp. |
