Five SA fintechs that service the growing market of SME lending [Updated]

An increasing number of fintech startups are looking to fund small businesses in South Africa using online platforms and apps to service the massive demand for such finance.

There may be tens of fintech platforms lending to SMEs that are now active in South Africa, and Ventureburn has identified five such fintech startups that have received investment in recent years (see the list, below).

A report (find it here) last year by Finfind — an online platform that helps link small firms to funders — revealed the total annual funding requests for small businesses to be between R86-billion and R346-billion (depending on whether 20% or 70% of small firms were looking for finance or not).

A number of such platforms have received investment of late. They include Lulalend which in June announced that it had closed a $6.5-million Series-A round and Joburg based fintech startup Fundrr which in May revealed it had received an undisclosed investment from a Cape Town angel investor.

A number of SA fintech platforms that fund SMEs have received investment recently

This week the founder of small business lender Geddes Capital said he had plans to “techify” the financier soon, after announcing that the lender had received R200-million for a UK investor to lend to local small businesses (see this story).

And earlier this year in March, True Impact executive director Justin Naidoo revealed that his fund aims to use a fintech platform to disburse R1-billion to 2000 small businesses over the next three years which will allow it to charge not a single cent in management fees, he claims.

The fund would partner with fintech funder ProfitShare Partners which had committed R100-million in funding over the next three years (see this story).

Most of these platforms offer finance that is notably more expensive than that of traditional bank finance, but the difficulty that many business owners experience in getting a bank loan (the high amount of red tape and lengthy waiting periods) means there’s a high demand for so-called alternative lending.

Here are five South African fintech platforms that lend to SMEs that have scored external investment.

Lulalend

In June Cape Town based fintech startup Lulalend announced that it had closed a $6.5-million (R92-million) Series-A round led by the World Bank’s IFCand Quona Capital (see this story).

The startup, which was founded in 2014 by CTO Neil Welman and CEO Trevor Gosling (pictured above, left and right, respectively), provides short-term loans to small businesses via an online platform (it typically lends out R150 000 over a six-month term period).

In a report at the time, TechCrunch said Lulalend will use the investment to develop its tech and data team and improve its ability to reach more small businesses to finance.

Gosling is quoted in the report as saying the startup is aiming to build a $100-million loan book “as quickly as possible” and that the latest investment will assist the company to achieve this.

Accion in 2016 led a round of funding in the startup (see this story). At the time Gosling said the startup had raised $1-million with equity and the debt side will run into multiple million dollars over time.

Since inception the startup has had access to over R150-million in debt funding and is on track to access another R500-million off the back of the startup’s latest equity raise, Gosling said in June (see this story).

At the time Gosling told Ventureburn that the financier is “performing very well”. “We’ve grown over 200% year-on-year having funded thousands of businesses to date,” he said.

The startup claims that the businesses its funded employ anything from one to over 100 employees and can be earning revenues of R40 000 per month to over R10-million per month.

Zande Africa

Zande Africa (formerly Invoiceworx) has an innovative financial and distribution platform that provides trade and merchant finance to spaza shops.

The startup was founded in 2017 by CEO Siya Ntutela and COO Mdu Thabethe (pictured above, left and right, respectively) to help spaza shops access crucial finance.

Zande raises lines of credit (30 to 60 days) with large FMCG manufacturers. These credit lines are then extended to informal retailers via physical stock and repaid in seven to 14 days. Zande delivers directly to the shops using a last-mile distribution model.

In addition, with 20 vehicles on its books, Zande has developed a better model of moving products from its warehouses to spaza shops while creating employment in communities (see this story).

The startup now has a turnover of R17-million with 71 staff and it is about to open a third depot in Orange Farm, south of Johannesburg, after growing its operations in Nelspruit and Ermelo.

On 2 September Joburg based fintech accelerator AlphaCode revealed that it had loaned about R10-million to Zande Africa, as supplier development finance under the BEE codes. The company was one of three black startups that the accelerator loaned a total of R23-million to (see this story).

Ntutela said at the time that the startup would use the loan for working capital to set up the company’s third depot and to improve his technology platform.

The business took third place in the SAB Foundation Social Innovation Award 2018 and won R1-million and support from Merrill Lynch South Africa and AlphaCode in 2016, an award which sought to identify and reward high potential South African fintech entrepreneurs.

Merchant Capital

Founded in 2013 by Dov Girnun (pictured above) and Daniel Moritz, Merchant Capital offers merchant trade finance to small business, allowing clients to repay loans through technology embedded in point-of-sale machines.

The startup has worked closely with an undisclosed cash advance provider in the US.

In 2013, the Capricorn Capital Group, which is associated with the broader Yellowwoods Group, made an investment in Merchant Capital. Neither party revealed how much was invested in the startup.

This investment was followed in 2015 by a further investment by Rand Merchant Investment Holdings (RMIH), which acquired a 25.1% stake in the business. Neither RMI nor Merchant Capital revealed how much was invested.

Merchant Capital claims it has provided R1-billion in funding to small businesses in South Africa up to 2018 and has funded 5 000 small businesses.

By the Merchant Capital’s own estimates, provided in an email to Ventureburn, the financier has helped created an estimated 100 000 jobs, or 20 new jobs per business funded.

Fundrr

Last month the founders of Joburg based fintech startup Fundrr revealed that they had finally landed funding in May from a Cape Town investor, after previously being rejected by 50 other angel investors (see this story)

The startup was founded by Idan Jaan, a financier, and chartered accountant Jarred Noche (pictured above, left and right, respectively) in June last year.

Jaan at the time declined to name the investor or how much had been invested. However, he was able to say that the investor is based in Cape Town and has made other fintech investments and that he has taken a 15% stake in the startup in return for putting in some debt.

He said most of the 50 rejections had come about when the startup was in the pre-revenue stage — this despite both founders having each invested R750 000 of their own “life savings” and having opted not to take or draw a salary from the business in its first 12 months.

Since inception Fundrr has lent out over R7-million to 60 small businesses, according to figures from Jaan. The startup claims that the average client has an annual turnover of R4-million and has taken out a term loan of R130 000 over six months.

To qualify for funding small businesses must have at least a 12-month track record, with a minimum of R1-million turnover or asset value.

The startup has 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.

Last month the startup said these businesses it funded are in food, retail, tourism, manufacturing, supermarkets, automotive, medical, health, beauty, accounting, entertainment, childcare and construction (see this story).

Uprise.Africa

SA equity crowdfunding platform Uprise.Africa in October last year announced that it had secured an undisclosed investment from Silicon Valley based venture capital (VC) firm Nexxus Ventures (see this story).

At the time Uprise.Africa said the investment round was concluded on a R60-million evaluation. Uprise.Africa added that the investment will enable it to launch new deals on its platform in the coming months.

In May the platform closed arguably Africa’s largest raise from an equity crowdfunding platform to date — when SA regtech startup Intergreatme raised R32,601,000 against a targeted raise of R24-million and all in a matter of days. Over 200 investors took part (see this story and this one).

At the time Uprise.Africa CEO Tabassum Qadir (pictured above) called the raise a record for African crowdfunding.

Last year, when the platform kicked off, it helped Drifter Brewery to raise almost R3.9-million from 196 investors at the campaign’s close in August last year (see this story).

Several campaigns however have not proven successful. These include one to raise R3-million to fund the publication of more African literature which flopped after the campaign failed to meet its fund-raising target (see this story).

Earlier this year a campaign by SA mobility startup Lüla to raise R2.5-million was also not successful in meeting its target (see this story).

Read more: SA small businesses were looking for R86bn in 2017 estimates Finfind report

Editor’s note (2 September 2019): This article was updated to include new information that Zande Africa was provided with a loan of about R10-million from fintech accelerator AlphaCode and that it has grown its turnover to R17-million with 71 staff, according to the accelerator.

This article was also updated o 19 August 2019 to include additional information on the impact of Merchant Capital’s funding.