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Data and automation are rapidly changing the lending game in South Africa. The country is seeing the emergence of an agile new class of fintech that uses proprietary data and algorithms to vet loan applications within minutes so that retailers can access working capital they need to grow and thrive.
This is according to Steven Heilbron, CEO of the Connect Group.
“Alternative, technology-powered financing solutions are disrupting South Africa’s commercial lending market, especially the retail space and in the process, it is helping thousands of SMEs to navigate the threats and opportunities of a volatile economic landscape during the pandemic,” Heilbron says.
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“The cost of capital and having access to business finance has traditionally been a challenge for local retailers, from the family-owned franchise of a major supermarket chain to the independently owned butcher, wholesaler or fast-food outlet,” he continues.
“In addition to high financing costs, lengthy approval processes and paperwork have posed significant obstacles to financing for these businesses.”
Data and Algorithms are Changing the Game
“Now, however, technology is changing this landscape by enabling innovative lenders to approve up to R 2,5 million in funding for a retail business owner in less than 24 hours. What’s more, rather than charging interest rates, they provide finance for a small administration fee.”
Heilbron says that access to rich, online data sources enables these lenders to assess whether a borrower is a credit risk without the usual requirement for audited financial statements and prolonged processing.
From the retailer’s perspective, applying for a loan has become as easy as downloading an app, registering and completing an application form. Once this is done, the borrower can tap between tens of thousands and millions of rand in borrowed funds, to be repaid on flexible terms and in small daily instalments which are deducted straight from a cash vault.
Should the retailer not make use of a cash vault, the borrowed funds can easily be deducted from a bank account. The good news for retailers is that funds can be deposited within hours of loan approval, allowing a merchant to capitalise on the opportunity at hand.
This level of access to financing is helping to transform the retail market by enabling retailers of all sizes to come to market with innovative propositions, Heilbron says.
“Many of our customers have faced complex challenges during the lockdown and have needed to be nimble to adjust to a new trading reality.”
Jumping on Opportunities
“With quick access to capital from [lenders such as] Capital Connect, merchants are able to jump on emerging opportunities while they’re relevant and grow their businesses.”
One example is bulk purchases of stock, where Capital Connect sees retailers make smart purchases at the right price to benefit from bulk buy discounts. Some mid-sized liquor traders, for instance, are now buying products at wholesale prices to resell to smaller bottle stores at a profit.
“Many are investing in expanding into new territories, moving into e-commerce for the first time and improve their in-store experience via coffee shops, hot food counters, bakeries and more.”
“In fact,” Heilbron says, “It’s not unusual to see a retailer grow turnover by 12% or more after refurbishing and modernising their stores. For others, easy access to working capital has simply enabled them to survive the worst of the lockdown.”
“To grow South Africa’s economy and spark job creation, we need to support the small and medium business sector. Providing businesses with capital is one of the best ways to help them unlock their full potential. In doing so, we can help drive choice and competition to the benefit of every South African consumer,” concludes Heilbron.
Edited by Luis Monzon
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