IXL Holdings

Stricter lending standards and capital requirements imposed by regulators on European banks as a result of the 2008 financial crisis have made it difficult for many small and medium-sized companies to raise the capital they need.

According to a recent survey by the European Central Bank, the proportion of small and medium-sized enterprises being refused bank loans is on the rise. From 2011 to 2013, the rejection rate across the continent increased from 10.9% of companies surveyed to 12.6%.

In some countries, such as Estonia, Ireland and Hungary, the rise in rejections has been three times as fast. Companies in the Netherlands and Greece have the hardest time getting a bank loan, with more than a third of firms turned down in the six months before the 2013 survey.

This drawback by traditional lenders has presented a lucrative opportunity for financial service firms with confidence in their own risk control systems. One company taking advantage of this demand for capital is IXL holdings, founded and run by Bundeep Singh Rangar, a financial consultant whose previous firm, Indusview, advised Western companies investing in India.

“A lot of companies from India were approaching us for financing and we were struck by the rates they were willing to pay, it was in the high teens,” recalls Rangar.

“So we started IXL in 2011 as a separate company, partnered with a bank in Germany, saw this arbitrage opportunity, and started lending,” he adds.

The firm’s main customers are other financial service companies that themselves make consumer and business loans. IXL holdings can provide instant liquidity of up to £100 million ($168 million) to these alternative lenders, giving Rangar’s company a decent spread while avoiding the high cost of managing numerous individual consumer loans.

The challenge, according to Rangar, is to find sub-prime lending opportunities with companies that have strong risk controls as well as some kind of unique competitive advantage.

Its two most recent investments areas are in premium financing, which are loans to cover the cost of an insurance premium, and guarantor loans which help young professionals pay down deposits for apartments. The firm is getting ready to make $50 million available to the premium finance market and has an extra $30 million lined up for the guarantor loan business.

IXL holdings was itself initially financed by Rangar’s friends and family, who raised 1.5 million euro ($2 million), but the firm is currently looking for strategic investors. This should not be hard given that this year’s revenues are close to £1.8 million ($3 million), according to Rangar, who is targeting a doubling of revenues each year.

To do this he will expand the company in Europe initially, with a focus on Scandinavian countries, Germany, Spain and Ireland, followed by Canada.

With E.U. banking regulations likely to become more restrictive on the continent’s major financial institutions, it seems likely that more companies will be forced to turn to alternative financing means.