Tractor Ventures launches 24-hour lending approvals, plans equity fund for 2024

Over the past three years Tractor Ventures has set itself apart in the local startup ecosystem. Nestled somewhere between VC and banks, it offers businesses an alternate path to funding thanks to its own proprietary (SaaS) model for assessing applicants’ financials. That now includes the ability to approve loans within 24 hours.

Australia’s alternative finance company

Tractor Ventures — which recently landed in our Smart50 list — describes itself as an alternative finance company for tech-enabled businesses. Since launching it has done this to the tune of $50 million across 130 companies, and with an average loan size of $380,000.

According to Tractor, it went three years before taking a single loan loss and its loss rate is 20% lower than the industry average.

“Too small or slow for VCs and too spicy for banks” is how co-founder and CEO of Tractor, Matt Allen, describes the type of businesses he’s interested in lending to.

“When we started Tractor the analogy I wrote was we talk about unicorns in startup land. I think it makes us sound like children. I say the analogy is rockets versus tractors,” Allen said on a call with SmartCompany.

“Rockets are very exciting. But they’re hard to land, expensive, and blow up all the time. Tractors just keep on going.”

“There’s a bunch of founders running a bunch of businesses that just keep going. They’ve been more like standard businesses that happened to be scalable and tech-enabled. They’re the ones that VCs tell them they aren’t good enough and the banks told them they’re too hard to lend to, to capitalise. That’s that’s the asset class we back.”

Allen is also incredibly open about the types of businesses Tractor lends too — those looking to grow.

“We’re not a payday lender, we only lend to people that are using your money to grow their businesses,” Allen said.

“We’re not here to pay the bills tomorrow. If you need to build a brand new product that will take a year… that’s not what we do.”

“We lend on things that have a fairly known and predictable return on investment.”

How Tractor Ventures is able to do what it does

Garry Williams with Tractor’s signature LEGO tractor gift for borrowers and founders. Image: LinkedIn

One could argue that the way Tractor has been able to offer the kind of funding it does because it’s a software-as-a-service (SaaS) company itself.

“What we’re actually building is a credit risk engine for tech companies, which doesn’t exist. We’re able to give everybody who applies to Tractor a credit risk score, which allows us to then lend the money in a methodical way,” Allen said.

“Tractor itself is actually a software company that happens to also lend money.”

Allen says there’s a few reasons why there has been a gaping hole in the Australian market when it comes to lending options for startups and SMEs.

“Everyone has been sold the Venture Capital Kool Aid. The only way to start a company is to be the next Canva or nothing. There’s nothing in between. And we know full well that’s not true. But it’s hard to get capital,” Allen said.

“But then the lending infrastructure in Australia — banks are just conservative. And APRA has told the banks recently to be even more conservative and lend to even less companies that don’t have assets behind them.”

Allen says that comparatively, what Tractor has under the hood is a cashflow lending product.

“We actually analyse the business for its cash flow, the ability to generate that cash flow and continue generating it into the future. And that’s what we’re lending against,” Allen said.

“Most banks are happy to lend some money as long as you’ve got a house, car or something that they can touch. So that’s that’s the difference.”

While making the comparisons, Allen said that he’s not anti-VC, Tractor just offers an alternative with a different set of expectations.

“We’re not anti-VC at all. We sit next to venture capital quite often. The challenge is that every piece of capital you take in your business has a set of expectations attached to it. And we know that venture expects rapid and fast and continual growth. What we expect is our money to be paid back every couple of years.”

24-hour lending approvals

What has seen rapid growth is the company’s approval time. Tractor now has the ability to approve loans within 24 hours for companies with at least $50,000 in reliable revenue each month.

Previously the approval process was relatively time-consuming. Tractor would pull business data from the likes of Xero and MYOB and apply manual processes and spreadsheets for its analysts to work from.

“We’ve gone through 200 iterations of that over the last three years. And the software itself is now able to do it. So we’ve just become more efficient,” Allen said.

According to Allen, there are still human eyes across the process, but the change means they can get more done.

“It’s exciting because it means we can lend faster, and we can lend smaller amounts of money because it takes less time.”

But Tractor has aspirations to make this even faster.

“The end of the game is to get it done in real time. We’re not quite there yet, but it’s getting close,” Allen said

Tractor plans an equity fund next year

Tractor Ventures co-founders Matt Allen, Jodie Imam and Aprill Enright. Supplied.

That’s not the only ambition that Tractor Ventures has for the future. In fact, despite its alternative lending path for businesses, it is planning to launch its very own ‘Irrigation’ equity fund in 2024.

The plans are for this fund — which aims to hit $50 million initially — is to target businesses with $2 million to $10 million in annual revenue. Allen says Tractor wants to play in this middle space because the businesses tend to be an asset class onto themselves and aren’t new businesses that are likely to disappear overnight.

In short, it’s the equity version of the lending Tractor is already doing.

“One thing we’ve realised is that a lot of these founders who are running these amazing bootstrap businesses that do $2-$20 million in revenue — they’re not anti other shareholders. The anti capital makes them risk the expectations on the growth.”

From what Allen describes, the fund itself plans on being ‘founder-friendly’.

“Those founders quite often will happily have some other shareholders that come along, who are happy just let them keep doing what they do. So that’s our intent with the Irrigation Fund.”

Allen said that the idea is for Tractor to take roughly 20% equity in these deals, with some going to the startups and some going to the founders.

” A lot of these families, their entire wealth is [tied-up] in the business and getting capital out of them  –besides dividends or whatever — is quite difficult. We help them solve that problem.”

While 20% is the percentage being thrown around, Allen said that can be flexible. That being said, Tractor does plan to operate the fund a little bit differently than usual funding rounds with lots of investors in order to adhere to its mission to not overly dilute equity in local businesses.

“These people are not going to be out raising money from a ton of people like a venture round would. It’s highly likely that we’ll be able to come in and do the round, with one extra shareholder on that table.”

This foray into equity funds is just another step in Tractor’s big plans for the future.

“We have a goal to have half a billion dollars on the lending books in 2028 and another half billion in the equity fund management in the next five years,” Allen said.

That’s going to mean sending out a lot more LEGO tractors, a signature that the company has become known for. The original plan was to send the very first business that borrowed money this. But Garry Williams, Director of Engagement at Tractor Ventures, started sending them to everyone on the books.

“Whenever I say something he just does it until I stay stop. But everybody loves it, and when we send them out people put them up on social and it’s just one of those things.”