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SMEs

Alternative lending sector self-regulates to look after SA’s SMEs

By Funding, SMEs

The alternative lending market is gathering momentum in South Africa, particularly from a small and medium enterprise (SME) market that often battles to get traditional institution-based financing. And although it’s not formally regulated yet, the industry’s own governing body is breaking new ground to ensure that SMEs are fairly treated and to maintain the industry’s reputation and sustainability.

Founded some seven years ago, the South African SME Finance Association (SASFA)’s membership includes the country’s leading alternative lenders – Merchant Capital, Lulalend and Retail Capital. It aims to encourage the use of alternative lenders, and highlight their role in providing opportunities for SMEs who do not qualify at traditional banks, says SASFA’s Dov Girnun.

“South African SMEs face a huge funding gap, and that often creates opportunities for unscrupulous operators who set alternative lenders back in terms of the challenge they seek to address. We found many other fintechs who shared our concern, and together we founded our own regulatory body that sets clear guidelines and rules for how to lend responsibly,” said Girnun. 

“For SMEs, choosing a provider who is a SASFA member gives them the peace of mind that they are dealing with a provider who has their business’s best interests at heart.”

One of SASFA’s main achievements to date is to reduce the occurrence of ‘stacking’, where one borrower takes out loans from several different lenders at the same time. This leads to situations where small business owners will struggle to repay all the loans – which creates a major problem not only for the small business owner but for each lender. 

“At SASFA, we have a zero-tolerance stacking policy. If unintentional stacking occurs, it is resolved between the members, thereby protecting all lenders who are deploying funding to SMEs,” said Girnun.

SASFA is currently on a drive to ensure as many players in the alternative lending sector as possible become part of the body, as Girnun says it is only a matter of time before the sector attracts formal regulatory interest. 

“At that time, it’s important for us to be able to give any future regulator the assurance they need that the industry is acting responsibly and in the best interest of all of South Africa’s SMEs,” he said.

About Merchant Capital

Merchant Capital is an alternative lender which provides tailor-made working capital solutions to retail, wholesale, manufacturing, and services-based businesses. Founded by lifelong entrepreneurs to overcome the barriers that small businesses face in raising capital, it sets itself apart in the market through a deep understanding of the challenges facing entrepreneurs, and an obsession with building lasting relationships that provide value to all parties. Since 2012, it has provided working capital to the value of more than R4 billion to over 20,000 SMEs using a “repay as you trade” payment model based on a percentage of sales. Powered by innovative technology, the model is customisable to SMEs, professionals and corporate clients across various business sectors and markets.

Why South African SMEs need simpler access to business funding

By Funding, SMEs No Comments

Once upon a time, SMEs would go to a bank and have to fill reams of paperwork to get a loan and possibly be rejected based on restrictive minimum criteria or an outdated credit scorecard. When businesses rely so heavily on working capital to grow and scale, this traditional lending system is no longer fit for purpose.

Enter new-age business credit facilities: online, on time, and on your side

Cash is the lifeblood of any business. That’s a line you’ve heard before. In fact, it has become one of those cliches that many of us repeat without stopping to think about what it means. But it’s an extremely accurate metaphor: cash isn’t simply essential to the health of a business, it needs to keep circulating or the whole enterprise grinds to a halt. SMEs are especially at risk of a liquidity mismatch, especially in unpredictable times.

Smaller businesses deserve a credit provider designed to meet their urgent cash flow needs. For precisely that reason, a new generation of alternative credit providers has emerged, to address the gap between SMEs wanting to grow and banks simply saying ‘no’.

For businesses themselves, the advantages of working with a forward-thinking credit provider are clear and considerable. These include:

  • It’s easy and online: No need to visit a physical bank or office. And no reams of paperwork. In fact, the whole application process only takes a couple of minutes.
  • It’s lightning-fast: traditional funders are grindingly slow and bureaucratic. But with the new way of lending, you can have the funds you need in your account literally within hours.
  • No hidden costs: Know all the costs upfront and only pay for what you use. Plus, there are no once-off application fees, ongoing monthly fees or hidden costs.
  • Flexibility: You choose how much to draw on when you need it. And built-in rewards mean you benefit if you repay early.

A cash flow infusion for the South African businesses that need it most

Most businesses need to access funding at some point. But some industries are particularly sensitive to seasonal fluctuations in demand, or simply need funding to drive growth and innovation.

Professional services

Professional services may not involve acquiring expensive equipment such as machinery, but the less tangible tools of the trade may be surprisingly costly. Salaries, contractors and rent recur monthly and tend to be the largest expenses. This can cause problems during quieter seasons and holiday periods, especially when employees expect annual bonuses.

Services businesses tend to have fewer assets that can be used as collateral to obtain a bank loan. Then there’s the opportunity cost of not being able to take on new projects due to a lack of staff. In such cases, you need cash to hire the right talent precisely when you need it. Given the mismatch between client payment terms and capital costs, many professional services need alternative sources of funding in order to grow.

Manufacturers and Wholesalers

Manufacturing and wholesale companies have an obvious and very urgent need for cash: if you can’t pay for the raw material, equipment or inventory you need to fulfil a project or delivery, you could lose a customer or contract.  Of course, even once you’ve secured the order, there is usually a considerable delay before the cusomter ultimately pays you. During this period you need to pay your own suppliers and bills.

Access to funding can also produce efficiency gains, enabling you to secure upfront payment discounts, as well as bulk discounts. If there’s a disruption in your supply chain, this may impact your ability to deliver on orders and ultimately to get paid. A short term credit facility can help bridge the gap over months of slower sales.

Retail & ecommerce

Retail is especially sensitive to changes in seasonal demand. At the same time, as the popular new brands change, you need to restore your inventory. Retailers need a solution to bridge the gap.

Buying the right stock at the right time is the retail specialist’s art, and you need the cash to pay your suppliers in order to make it happen. But we also realise demand doesn’t just happen. Cash on hand enables you to invest in a successful marketing campaign and expand product lines.

Software development, IT and Tech

Good tech staff are worth their weight in gold. Access to funding lets you build your team and retain your top talent. That means never turning down a project because you lack the manpower. Access to cash also enables tech businesses to cover those expensive software licences and fees.

The rise of small business in South Africa

According to Statistics South Africa, smaller businesses have slowly but surely increased their contribution to the economy. In 2013, small businesses contributed just 16% of the turnover in the formal sector. By 2019, this had increased to 22%. That’s highly encouraging, as SMMEs are critical drivers of overall economic growth.

But without access to funding fast, they’re cut off at the knees before they can even join the race. Fast, accessible business loans give a company a competitive advantage and allow South African businesses to not only compete within South Africa but to compete on an international level.

About Bridgement

Bridgement offers fast and flexible business funding with near-instant decisions on applications and removes the need for lengthy forms and long-term commitments.

With a Bridgement facility, you can spend less time managing cash flow and more time growing your business. Apply online in 2 minutes, and access funds within hours.