She describes it as “tax-powered working capital”. It’s an idea that has taken off, with the business growing at a rate of 120% every four months since opening in March of this year.
Currently, Taxi’s interest rate is 5.9%. Taylor says some of the company’s clients were paying 22.5% on their business overdrafts, so the difference is significant.
The other advantage Taxi has is its flexibility. Small-business bank loans usually require a lot of paperwork. “We don’t ask for complicated cash flow forecasting, we don’t put you through hoops to get the funding. The funding is there to be used, you are part of the economy and it’s available to you.”
Taxi’s other advantage over small business bank lending is its speed. Customers sign up through an online site, which simplifies the process.
“We have had people create an account for the first time and within nine minutes they have completed all their sign-ups. They have filled in everything they need to. Then within 24 hours, they will have access to the funding.”
The experience is about going online and spending a few minutes answering simple questions. This compares to working with an accountant, setting up cash flow forecasts and making an appointment to talk to the bank. Once there, you may have a stressful meeting, possibly feeling misunderstood and even being rejected. In a world where time is money, the traditional process can be a real overhead.
Two words Taylor uses that are not normally associated with business lending are “democratic” and “dignified”.
“Dignified” comes from doing away with the possibility of rejection, as long as you meet basic criteria and have made provisional tax payments, there is no barrier to getting the funds. There is no need to justify yourself.
“Democratic”, because this kind of lending against provisional tax payments has been available to large companies for some time.
“We didn’t think that was fair. Every Kiwi business needs this kind of funding.”
In the past, a company needed to pay $30 million in tax or provisional tax to unlock funding. It took Taxi’s approach to bring the same facility to SMEs.
That means almost every size of business. Taylor says: “We’ve had people accessing $1800, that’s our smallest user. We’ve also had someone access $660,000. There has been a strong uptake not only across a wide range of industries but also across all sizes of business.”
Businesses often use the money as working capital. One example Taylor came across while researching the idea of Taxi was for a cafe needing a new oven.
“We’ve seen users just keep the facility there for their peace of mind. They’re not necessarily drawing on it.”
Others will use it to invest in something needed to improve productivity or to trade through a quiet season. Some use it to purchase additional stock or to widen their service offering.
A common use is to manage cash flow. Taylor says all these uses can have a large impact on a business.
The idea for Taxi came to Taylor and her co-founder Josh Taylor during the 2021 lockdown.
The pair previously founded Tax Traders, another fintech.
“At the time we did a transaction for a big corporate taxpayer. It took two days of work at our end and two days at their end. It cost somewhere between $20,000 and $30,000 in legal fees. There was that much complexity.”
She says after that, they were determined to bring some equity to the tax system and make this kind of lending available for every business.
“It’s not okay that the benefits are only available for corporates and not for the everyday SMEs who make up most of the economy.”
Taxi became a mission to challenge the status quo. “It’s a new product and a new market.
“Nobody has ever done this before except a couple of big corporates. We’ve seen first-hand just how important working capital is for SMEs.
“It is important for the mental health of business owners and we’ve seen just how important it is for the country in terms of productivity.”
All of this fuelled the Taylors’ motivation, but there was an obstacle to overcome.
Nicola Taylor says due to their experience they realised it might be complicated, but it turned out to be more so than anticipated.
Discussions widened to include Tax Traders co-chief executive Tim Kirkpatrick, who is also a shareholder.
“In September 2021, during lockdown, I pitched the idea to Josh. I pitched it to Tim,” she recalls.
“We were all on the same page.
“And I said to the guys, ‘I think we can build this before Christmas’.
“It was built before Christmas, but not that one. It took over two years. That speaks to the precision required, the legal complexity and the technical complexity.”
Josh Taylor says the technical complexity is because Taxi means taking tax payments that are a regulatory requirement and that it needs to collect, and track the payments to make sure they continue to cycle through to Inland Revenue.
“Because they are unused and can sit at IRD for up to 18 months, there’s a period of time where we can use them as security for additional funding.
“The complexity lies in structuring the arrangement so that a company’s tax remains compliant while there’s a facility. It means timeframes, legislation, credit-lending criteria.
“There is this intersection of different things, then we have to package it all up in a way that keeps the complexity from the end user while still giving them comfort knowing the complexity is taken care of and managed.”
NZIER on Taxi’s economic benefits
Cash flow constraints and barriers to capital for investment stymie growth potential and entrepreneurialism. By utilising provisional tax payments, Taxi provides greater access to working capital for business investment, improving productivity, lowering production costs, supporting increased innovation and product development and expanding productive capacity.
Taxi is an advertising sponsor of the Herald’s Dynamic Business report.
