Online video company, Big Un Ltd.’s (ASX: BIG) stock plunged over 42% on February 09, 2018 after the company admitted that its customers were paying for its services with money advanced to it by a Sydney finance company, FC Capital through its Finstro platform, which is a small business lender.

Finstro has been said to be providing funding to Big Un to enable it to offer interest-free payment terms to its customers with no upfront cost of production. Particularly, FC Capital through its Finstro platform enables SME businesses to invest in growth by managing their cash flow and providing working capital facilities to pay suppliers.

In return, Big Un has been speculated of issuing shares to Finstro at discounts. Thus, the cash generation was noted to push the stock on the upward trend. While the group tried to dismiss the allegations, BIG’s share register seems to have unearthed that FC Capital has been issued with 3,030,303 shares in Big Un at 20 cents with most recent issue being a 530,303 placement in January at 20 cents when BIG Un traded at $3.31.

Big collected over $22.5 million of cash receipts in the Q2 FY18 at the back of cash profit of $10.3m for Q2 FY18 from operating and investing activities and a further $5.6m was received from the exercise of share options resulting in a net increase in cash of $15.8m and a closing cash balance of $31.4m. The group’s revenue from existing customers totalled $2.8m in Q2 FY18 and represented 82% of revenue generated from customers in the corresponding quarter Q2 FY17.

Commenting on this entire episode, BIG has stated that it does not loan money to SMEs nor currently earn commission from Finstro on any loan subsequently taken up by SMEs. BIG values its ongoing partnership with Finstro which allows it to offer alternate payment solutions to customers for the video marketing packages. This has proved to be very popular with its customers and BIG is in fact exploring its ability to offer similar options to the overseas customers. The group believes that this enables the customers to take up BIG products which will enhance market penetration and help the group leverage its first mover advantage.

It might be better to avoid the stock at least till the dust settles.

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