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Fintech disruptors enter the small business funding spa...



A host of new fintech disruptors are addressing the funding challenges of small and medium-sized enterprises

A woman walks past a signboard for PayNow, a mobile fund transfer app, at the FinTech Festival in Singapore, on 15 November 2017. (Photo: EPA-EFE / WALLACE WOON)

Small business owners face a variety of challenges for which non-traditional financiers say they have some answers. 

First published in the Daily Maverick 168 weekly newspaper.

Tom Stuart, chief marketing officer at Lulalend, explains that the biggest challenge faced by small and medium-sized enterprises (SMEs) in SA is accessing funding. Lulalend offers funding up to R2-million, which can be applied for and accessed quickly. 

Marnus Wapenaar, cofounder of Betterbanc, explains that they offer a lump sum amount for a fixed term, or a revenue share funding product. “We have so much potential and entrepreneurial flair in this country and it’s refreshing to work with entrepreneurs and founders on a daily basis, but the challenge is to help the micro business owner and give them the foundation, skills and grants that they need to start.” 

Karl Westvig, the CEO of Retail Capital, explains that typically banks underservice micro businesses and offer longer processes, expecting larger amounts of security. “They serve small businesses in the market very poorly.” Instead, financiers like Retail Capital offer cash flow-based financing based on only a few months of history, within minutes or days. 

Daniel Goldberg is the CEO and cofounder of Bridgement, which offers online funding including business loans, lines of credit and invoice finance facilities. Bridgement attempts to simplify funding access by requiring no assets or collateral as security and a minimum trade history of only six months. 

Goldberg explains that these kinds of offerings are particularly important now, because there is an unmet demand for credit among SMEs of an estimated R86-billion to R346-billion before the Covid-19 pandemic. “With the impact of Covid on SMEs and uncertainty in the economy, we’re seeing banks further reduce their risk appetite, resulting in the closure or reduction of credit lines and overdrafts previously approved for their small-business clients.” 

The other significant challenge is tracking and analysing financial data. 

“This is primarily due to a lack of either financial and accounting expertise or the right tools,” says Stuart.

Another challenge is for business-to-business (B2B) businesses who need to offer trade credit. Stuart explains that around 70% of B2B businesses do this, usually with a credit period of 60 days. 

This can heavily influence the cash flow of a small business and requires both risk and collection management.  

Goldberg says that education around alternative funding options is a significant hindrance, as is trust and comfort, particularly around accessing credit online. He believes this will improve over time. 

In the future Goldberg sees “more partnerships being created between fintechs and banks, corporates and government to take advantage of their respective strengths and better serve small businesses”.

Wapenaar hopes for strategic partnerships also expanding between fintech companies and banks, to fast-track the financial inclusion of SMEs. 

Westvig says that one of their challenges is that many micro SMEs don’t bank their cash, which makes it harder to prove their track record, but he says there is a greater move towards devices and cards now. 

He says he wants to see greater digitisation of the township economy, particularly because more people have digital means of paying but tend to only use those in more formal environments. 

“Financial services and other innovations really have to be geared towards promoting entrepreneurship as a sustainable way out of poverty and unemployment,” says Matthew Brownell, VP of Commercial at Yoco, which offers tools and services to small businesses, such as digital payment solutions.

He explains that SME financing should grow businesses, not just provide access. “We feel that it is the responsibility of any financial provider operating within the ecosystem to address the underlying issue that continues to perpetuate the cycles of exclusion that so many businesses face.”

For Yoco, tools and services allow for that much-needed support. “We knew how underserviced SMEs were in SA, and that card payment presented opportunities to support them.” Brownell says that the legal red tape around product structures prevents many small businesses from accessing credit, and that this must be reconsidered. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.


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