Alternative Funding for SMEs

Alternative Funding for SMEs


With the latest employer figures revealing a decline in the number of self-employed individuals – from 1 281 000 in 2008, to 1 243 000 in 2012, it’s clear that entrepreneurs are experiencing increasing difficulties in getting their businesses off the ground.

David Lewis, chief executive officer of Retail Capital, a business cash advance provider, believes that small business entrepreneurs are a massively underserved segment in the South African banking and credit environment.

Banks are lending conservatively

“In recent times, the ‘credit crunch’ and the associated bank liquidity problems, have resulted in banks becoming far more conservative in lending policies, which has increased overall decline rates.

“Some banks have exited entirely from specific small business market segments that are perceived as ‘higher risk’. In short, business’s need for working capital has increased, but the availability and accessibility of credit has reduced.”

Retail Capital recently undertook a research survey targeted specifically at those within the hospitality SME sector, in order to identify some of the issues associated with obtaining working capital in South Africa’s volatile economy.

Access to funding always an issue

Unsurprisingly, access to working capital was attributed as the biggest challenge faced by SMEs. The survey indicated that the majority of respondents still turned to their banks or a traditional financial institution first when needing to obtain working capital.

As many as three out of ten business owners had previously had their application for a business loan declined by a bank. Only 39% of successful applicants rated the overall experience as positive.

Respondents attributed the top three reasons for obtaining a business loan to be the desire for expansion, followed closely by the need for equipment and renovations.

Banks aren’t user-friendly

Almost 60% of applicants cited ‘lack of flexibility’ as the most common frustration when obtaining a business loan from a bank, followed closely by the length of the application process and a poor approval rate.

After banks, alternative funding providers were listed as the second choice for obtaining working capital.

Alternative sources of funding

Respondents cited high repayment rates as their main concern when approaching a non-traditional financial institution. 70% of respondents found flexible repayment terms attractive, 41% highlighted ‘no security required’ as a valuable feature of a financial product, followed closely by a speedy application processing period.

Try a business cash advance

Retail Capital’s business cash advance product entails advancing a lump sum of the business’s future sales – so the business effectively funds its own growth. The provider takes an agreed percentage of daily credit/debit card sales until the total value that has been purchased is reached, with no fixed payment period.

The key advantages are:

  • no financial security or guarantees against business failure are required,
  • the pay-over process is linked to turnover, so the repayments are flexible,
  • the application process is simple and comparatively quick – you could effectively have access to the funds within ten days.
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