There’s usually something at the cause of a shift in pattern, and looking past Black Friday’s whirlwind, there was a definite shift in consumer…
Fintech company GroWise Capital, a specialist small business funder, has identified key changes in the funding industry the past year. These include application data, the industry itself, industry growth and post-pandemic recovery, says Jonti Strimling, co-founder and chief risk officer.
The driving force behind the business was South African SMMEs’ funding needs which were largely underserved, as well as the country’s ambition to increase employment opportunities through growing the SMME sector.
GroWise Capital has thus created a different approach to mitigating risk, largely due to understanding the cashflow requirements of small businesses, says Strimling. “A deep understanding of our clients’ needs allows us to make quick decisions and tailor our funding and repayments to each client’s specific funding circumstances.”
Change in application data
The application data for alternative financing has changed. The average credit score for applications has increased by 15% from 2021 to 2022. Strimling says this indicates healthy financial post-Covid recovery for businesses and also that strong businesses are choosing non-traditional funders for business funding to capitalise their growth trajectories.
“The overall increase in credit score may come as a surprise, as credit scores are expected to worsen following a global pandemic. However, it shows a shift in the markets’ approach to business funding. Strong, solvent businesses that would traditionally draw on additional lines of credit with their banks, are opting to explore other financing routes in a post-pandemic climate.”
These businesses want fast and easy funding to assist with growth and supplement their cash flow requirements from funding specialists who know what they need, Strimling says.
“We assess the sustainability of a client’s cashflow when deciding on applications. This allows us to provide quick and flexible funding, designed around their particular needs.”
Change in industries
The demand for alternative forms of business funding was previously high in the retail sector, but over the past year, a much larger portion of the market is demanding access to alternative forms of funding, across a wider range of industries, such as construction, logistics and fuel supply.
Strimling says, “Collectively we have seen a 20% increase in applications from these industries in the second half of this year compared with the first two quarters of 2022.
“More industries are now realising the benefits of partnering with alternative business funders, which reflects how the business funding landscape is changing and adapting.”
Strimling adds that GroWise Capital’s application data supports this. “While restaurants, grocery stores and other retail merchants still make up a large portion of funding applications, we are receiving more applications and are funding a larger volume of businesses in industries including manufacturing, construction and retail supply verticals. Businesses include engineering companies, food production businesses and large electrical and construction companies.
Post-Covid recovery and changes in default rates
The most recent Momentum-Unisa Consumer Financial Vulnerability Index (CFVI) has indicated that after a brief recovery in the first quarter, South Africans are very vulnerable across income, expenditure, savings and debt servicing in the second and third quarters of this year compared to this time last year.
Strimling says this further increases the demand for business funding and the need to make it more readily available to the market.
“Despite this vulnerability, impairment rates steadily declined at GroWise across all industries compared to this time last year. This healthy improvement is a further indication of the steady financial recovery of businesses.”