New SA fintech aims to disrupt traditional, alternative SME financing [Sponsored]

There are 2.4 million small and medium-sized enterprises (SMEs) in South Africa that employ around 60% to 70% of the working population. But this market experiences a dearth of funding, leading to a R86-billion credit gap for small businesses.

Each year, the number of SMEs in the country decreases due to their inability to access finance.

The founders of Fundrr plan to disrupt this market by funding R1-billion worth of South African business growth in the next five years to become the preferred alternative lenders for SMEs.

The founders, Idan Jaan and Jarred Noche (pictured above, left and right, respectively) are determined to make a difference in this market. Jaan previously worked in a group which had 80 SMEs in the portfolio – hardly any of which were able to access bank funding.

“Those that applied for funding would wait 12 weeks for a decision, they had mountains of bureaucracy to get through, and even alternative lenders couldn’t help,” he explains. “It also took too long for a decision and funding was too expensive to be viable.”

Noche, a chartered accountant (CA), also noted how underserved SMEs are and that so many close within three years due to lack of funding.

“Banks have no idea how to underwrite a small business because they use traditional sources of information which don’t give a true picture of the state of the business. For instance, they expect small businesses to have audited financial statements, yet many SMEs have no need for audited financials and can’t afford them.”

Automated credit model

Jaan and Noche realised they needed to evaluate small business differently. So, they developed an automated credit model that analyses close to 100 data points (including factors like social media presence) to provide a more complete picture of a small business and its growth possibilities.

This produces a Fundrr score, and on this basis, they are able to provide loans from R20 000 to R500 000. Fundrr has offered loans to 70% of those who have applied.

The business, which began last year in June, will fund South African businesses that have at least a 12-month track record, with a minimum of R1-million turnover or asset value.

Fundrr is open to any industry and has funded businesses in food, retail, tourism, manufacturing, supermarkets, automotive, medical, health, beauty, accounting, entertainment, childcare and construction.

They are open to B2B and B2C operations. Funding is typically used to buy stock, open new stores, purchase equipment, undertake renovations or expand the business.

Fundrr itself managed to attract substantial funding from an angel investor and has opened offices in Johannesburg and Cape Town. Its board has 40 years of tech and credit experience.

The application and onboarding are completed online in under 8 minutes and responses are provided within 24 hours. The information needed for an assessment is readily available for most businesses.

Lower rates for lower risk

Fundrr has developed various underwriting models for different industries as cashflow and operational patterns differ. The repayment of loans is also individually tailored.

“We analyse the cashflow patterns of the business. On this basis, we recommend a suitable payment structure collecting repayments either daily, weekly, bi-monthly or monthly over a three to 12-month repayment period,” says Jaan.

Rates of interest vary depending on the strength of the businesses. Lower risk businesses can expect to pay lower rates – unlike competitors who charge a flat interest rate irrespective of the risk.

In addition, Fundrr does not penalise entrepreneurs for early repayment, in fact the transparent and flexible model offers an early repayment incentive and specifies the amount of the loan, the duration and the total amount to be repaid.

Interestingly, 40% of the businesses that have received funding from Fundrr have returned for additional loans.

Dominique Collett, head of AlphaCode that identifies, partners and grows early stage financial service ventures for Rand Merchant Investments (RMI), comments, “One of the biggest impediments to the growth of SA’s SMEs is a dearth of funding.

“We are seeing that Fundrr is able to fill that gap in an extremely innovative way using technology and by rethinking the limitations of the incumbents in a largely staid credit environment.”

Fundrr is a gold member of AlphaCode.

This article was sponsored by AlphaCode, a Rand Merchant Bank initiative

Featured image (left to right): Fundrr co-founders Idan Jaan and Jarred Noche (Supplied)