How SMMEs can leverage fintech to get a leg up

It’s now a lot easier and faster for SA’s small businesses to access funding thanks to the influence of fintech. These solutions combine technology and data analytics to provide funding to businesses while also driving financial inclusion.

According to the National Credit Regulator, most small businesses do not last more than two years due to an inability to access funding. “The rise of these fintechs helps not only the small business owner but the economy,” says Idan Jaan, CEO and co-founder of Fundrr, a fintech providing funding for small businesses.

Fintech business funding has transformed borrowing for the better and drives financial inclusion by speeding up funding approvals.

Jaan has witnessed how the fintech industry has evolved over the last few years. “Fintech pioneers recognised that innovation was desperately needed to serve the needs of business. The funding gap was getting bigger, and businesses had increased cash flow pressure due to economic instability.”

Credit scoring that drives financial inclusion

Jaan says when South African business owners apply for funding from traditional financial institutions, the banks assess several factors, including liquidity, current ratios, credit scores, debtors’ book, and creditors’ book. This is a problem for early-stage businesses as they might not be able to provide all this information.

During the pandemic, banks wanted to ease their funding criteria and help businesses with funds backed by government via the ‘Covid Loan Guarantee Scheme’ that ran until July 2021. As part of this scheme, the banks reported figures that illustrate the scale of the funding problem.

By the end of June 2021, banks declined 56% of applications due to businesses ‘not meeting the banks’ risk criteria’, while 82% of the approved loans went to enterprises with a turnover of up to R20m, with an average loan value R1.22 million.

“Fortunately, emerging fintech business funders are providing solutions and are evolving beyond traditional credit scores by doing a more holistic assessment of creditworthiness with real-time, API driven, analysis of other data points.”

This helps to unlock capital for more businesses in South Africa that were hindered by old-school metrics currently used by formal financial institutions. Jaan says Fundrr’s average funded business has a turnover of R100 000 per month, which shows the underserved gap in the market that fintech is trying to fill.

In 2021 banks declined 56% of applications due to businesses not meeting the risk criteria.

Four ways your business benefits from fintech funding:

1. Some solutions allow clients to connect their bank accounts and accounting platforms to allow instant access and an overview of the business finances.
2. Fast access to unrestrictive lines of capital enables quicker response to market conditions.
3. There is more flexibility and transparency.
4. Fintech solutions are constantly revisited and optimised for market demands.

Fundrr also went through a difficult time as many other businesses did during the pandemic as demand for funding increased and clients’ ability to pay decreased during the first hard lockdown. However, Fundrr attracted an investor and grew its book by over 500% during the past year, disbursing 316% more per month than in the previous year.

The digital-only business quadrupled its team and is on track to disburse R100 million in funding to SMEs in the coming year. The immediate service, transparency, and ease of applying has translated into a retention rate of 80%, with 4 in 5 businesses returning for additional loans.

Featured image: Austin Distel/Unsplash