FINANCE: Alternative Funding Solution for South African Businesses
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Following the global credit meltdown, the toxic asset collapse, the liquidity crunch and the potential of sovereign debt default, banks have become far more conservative and as a result, accessing business funding has never been more difficult. Although shielded from some of the problems experienced in the US and EU, South African banks have also tightened lending policies, with a decline in both the value of business funding and the number of approved credit applications.
Small business borrowers experience a complex and time consuming process, with stringent documentation requirements, onerous security obligations and decision times of up to 12 weeks; only to find that the majority of applications from this segment are being declined.
Independent enterprises such as restaurants, retailers, spas, beauty salons and auto fitment centres are often limited in their access to finance due to their perceived risk of failure, or inability to provide the required securities. In a vicious 'Catch-22' situation, this lack of access to finance contributes to a higher failure rate as these businesses are more vulnerable to cash flow challenges.
Retail Capital has introduced an innovative new product, called a business cash advance, specifically for South African business owners of small to medium companies that may provide an answer to these problems.
The product allows small business owners to leverage an asset that the banks do not even consider; their future debit and credit card turnover. Simply put, Retail Capital will buy an amount of future card turnover, for a discounted price paid immediately. An agreed percentage of the future debit and credit card transactions are then passed over to Retail Capital, until the total amount purchased is realised.
Each advance is tailored to the specific needs, capabilities and turnover of the business, with no personal financial surety required from business owners. As the pay over is based on turnover, it ebbs and flows with the business cycles, ensuring that pay over is more affordable than fixed credit instalments.
The concept of a business cash advance may be new to South Africa, but it has been established in the United States since 1998, by AdvanceMe, who have assisted over 20,000 businesses, with over 80,000 advances. The product has also been established in Canada, Hong Kong and the United Kingdom for many years and most recently Australia.
In order to qualify for a business cash advance, businesses will need:
- To have been operating for at least 6 months
- A track record of debit and or credit card turnover
- Have an established business location
Applicants will be required to supply merchant information detailing card turnover and contractual agreement, recent bank statements and a copy of the mortgage/lease agreement. In addition, key references will be requested. Once these documents are received, applications can be processed and money dispersed within as little as two - three weeks.
A business cash advance has many benefits, but is notably simpler, more flexible and faster than traditional options. In addition, the daily pay over integrates seamlessly with existing business processes, making it quite convenient.
Retail Capital is committed to facilitating business growth, through the provision of flexible and convenient funding solutions, based on joint success.
As an emerging market economy, South Africa is a country with great potential for growth, but one that currently has high unemployment rates. The government has set a goal of creating four million new jobs by 2014. As over 60% of the working population are currently employed in the small to medium business sector, growth in this sector can have a significant positive impact on job creation.
Business News Sector Tags: Finance|