Fintech closes the funding gap for SMEs
PROBLEM: TRADITIONAL BANKS REMAIN STRINGENT ON LENDING POLICIES
Entrepreneurs should do their due diligence before approaching a company for finance.
Small and medium enterprises (SMEs) often experience challenges receiving funding from traditional banks. As a result, over the years there has been an increasing number of fintech start-ups that are looking to fund small businesses in South Africa using online platforms and apps to service the demand for finance.
According to Disrupt Africa’s Finnovating for Africa 2019, Reimagining the African financial services landscape report, African tech start-ups have grown by 61% to reach 261 from 2017.
South Africa, Nigeria and Kenya are at the forefront of start-up activity in the fintech sector.
It said South Africa has 141 Fintech companies – so why not take advantage of this space?
Trevor Gosling, CEO and co-founder of Lulalend, said the advantage of Fintech companies is that they don‘t rely on older methodologies and analogue methods that traditional institutions often use.
“So, it‘s really about using technology and all the access data and the ability to build up machine learning models and that sort of thing to be able to service the segments of the market,” Gosling said.
The funding gap for small businesses is $23 billion. “It‘s a pretty sizable gap that needs to be overcome,” Gosling said.
Gosling said he does not believe that the onus of funding small businesses in the country lies only with traditional financial institutions.
“[It is not only the responsibility] though we do expect that these banks throughout the country encumber of the space to be able to, to step up and handle a large part of it.
“But it‘s about bringing in different ways to be able to finance the segments of the market,” Gosling said.
He said receiving funding through Fintech companies is often easier than seeking it from traditional financial institutions.
“It is definitely a lot easier than through a more traditional approach. Your banks would typically want to see some sort of collateral in place or [request to] have financial statements, tax data around your business,” Gosling said.
He said Fintech companies use technology to analyse and predict the state of the business.
“Whereas we go to the core fundamentals and we analyse, what we believe and what our machine learning modelling has shown to be the most accurate predictor of your business performance,” Gosling said.
There are some requirements that a small business needs to meet when looking for funding.
In most cases, Fintech firms require that a company be operating for at least a year and have transactional activities in its bank accounts.
Gosling warns that because segments of the fintech market are currently unregulated, entrepreneurs should do their due diligence before approaching a company.
“With a segment of the market that is currently unregulated, to a large extent, there is the opportunity for unscrupulous lenders to enter the market. So it’s important that a lender understands who they are taking money from,” Gosling said.