Home » Alternative financing is crucial to the SME sector in South Africa

Alternative financing is crucial to the SME sector in South Africa

by Media Xpose

Small and medium sized businesses are the real drivers of the South African economy. They create employment and wealth, with more than 30% of South Africa’s GDP and more than 40% of all employment created by these businesses.

But it is not easy to be a small or medium-sized business owner. Traditional financing aren’t built with the risk appetite of a smaller businesses in mind. For women-headed enterprises, any avenue of financing is even more difficult to access. A study by the African Development Bank found that the financing gap for women in Sub-Saharan Africa is estimated at above $42 billion.

For one woman-owned and operated East Rand-based supply company, accessing finance has been their biggest headache.

“Facing a bank is difficult when it comes to paperwork and securing funding. But with Merchant Capital, it’s like having a silent partner who does not interfere in our day-to-day operations.”

A recent OECD study found that only 26% of bank lending in South Africa is to small and medium businesses, significantly lower than the rest of the world. Merchant Capital was established in 2012, as an alternative provider of working capital, designed specifically for retail, wholesale, manufacturing, and services-based businesses, and has since assisted over 20 000 South African SMEs with over R4-billion worth of funding.

Merchant Capital has provided this woman-owned supply company with working capital on an ongoing basis, particularly during the economic ravages of the Covid-19 pandemic.

Working capital is essentially cash-on-hand which is used by the business in its day-to-day trade and operations. The model enables the business owner to scale up her businesses with an upfront lump sum in the form of a cash advance in exchange for a small, fixed percentage of her future turnover.

As the supply company was considered an essential service provider during the nationwide lockdown, they could operate, even though it meant reducing salaries and the owner using her own money to supplement the operations. Crucially, not a single staff member was retrenched.

“When we initially met with Merchant Capital, we were fearful… but they assisted us so much. Our success – which has seen us grow by double digits year on year – is due to this relationship.

“They have helped us grow exponentially, and we would not have survived without their assistance.”

This support has seen the company grow to employ 64 people, and expand their operations throughout South Africa and into the rest of the continent.

The freedom from financial worry has allowed the business to adapt and innovate in the face of supply chain issues brought about by the pandemic and worldwide lockdowns. “We had huge supply chain issues, but we kept finding ways of sorting it out. Our company is agile, we adapt to get what is needed to make the business succeed and deliver to our customers.”

Their customers include several blue-chip companies, so sourcing material and supplies to keep these customers are crucial. “Even during the toughest times of the pandemic and lockdowns, we could think outside the box because we do not have tunnel vision. Because we employ young people – who already think outside the box – we could find solutions to problems quickly, without letting down our customers.”

This successful, and profitable, medium-sized enterprise has plans to expand their services even further.

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