SMEs enable innovation and competition in markets and form the backbone of many successful economies. An estimated 17% of South Africa’s total employment is said to be through the informal economy or the so-called “township economy”.
In a country with such high unemployment rates, yet abuzz with entrepreneurial flare, we sat down with Lesego Mpakanyane, Business Development Manager - VodaLend at Vodacom Financial Services, to unpack how SMEs can access the funding they need to run their businesses through different economic climates.
Since the global Covid-19 pandemic hit South Africa in 2020, about 57,3% of businesses remained open, while 42,7% had to close. A big reason for this was a lack of business finance. Some of these closed businesses have not managed to reopen their doors because the money to finance their shops has not been easy to access.
According to the Small Business Research Specialists, SBP 29 September 2020 report:
“In most parts of the world, SMEs account for the vast majority of the firms contributing to their country’s economy and especially unemployment.”
Q: The availability of business finance or the lack thereof can make or break a business, can you elaborate on the importance of Asset Back Funding?
A: Since we started supporting businesses that are mainly classified under the definition of the “township economy” or underserved businesses, we have seen a positive uptick in the number of applications, and this is because our business lending products are easy to understand, and the application process is simple and intuitive to complete which results in faster responses and outcome which saves entrepreneurs valuable time. It is impossible for a business to survive without an inflow and outflow of cash, and this is what both of us and the businesses understand.
The importance of asset-backed funding reduces the upfront capital requirement of using and ultimately owning an asset such as vehicles, machinery and equipment and it spreads the repayment over the lifespan of that asset article while the entrepreneur enjoys the immediate benefits of ownership, use and operational efficiencies to grow their business.
What we are particularly proud of is how our funding is not based on any underlying business asset. This means that entrepreneurs have the flexibility to use the funding in a manner that serves their businesses best.
Q: What is cash flow lending and why is this an essential line item for business owners?
A: Cashflow technically is derived from your business’ operating, financing and investing activities. Simply put it is the actual exchange of cash (inflow or outflow) from your daily business activities. The future cash flow of a business can be predicted with a high level of certainty. Predictions are based on historical information and factors like seasonality, product availability and supply. This differs substantially from asset-based funding as how much you need will depend on the size of your business or how much you want to grow it. Cash flow lending is essential for your day-to-day business items that need immediate cash such as advertising costs, small equipment, stock and similar products.
Business Cash Advance from VodaLend makes cash flow lending simple, depending on how much you qualify for, you can rest assured that in your reserves this cash is available for when you need it the most. What makes this solution easy and convenient is that we do not charge interest and the repayment is linked to a percentage of your turnover. This way you can be sure of how much you are paying and for how long without planning for contingencies that may inflate your repayment amount.
Q: Starting capital is a need for a business to get off the ground, how does that compare with working capital?
A: Since we started funding businesses, not only from small corner shops to general dealers, there has been a significant uptick in the number of entrepreneurs who apply for business funding. The frequency in which they borrow has also increased considerably. The reason for this is accessibility and simplicity in the application process. The outcome of an application is almost immediate.
There are options wherein Angel investors, venture capitalists of family and friends can contribute towards the start-up of a business in exchange for shares. These shares may be bought back at a premium. However, when it comes to friends and family, repayments of loans and funding are not always a top priority.
Working capital on the other hand is funding that bridges the gap between debtors, creditors, and inventory (stock) awaiting sales during the ordinary course of business. Therefore, starting capital is the money or equipment you need to start your business and working capital is what you will raise and save as you continue operating your business.
Q: With the challenges facing businesses and SMEs, what has been the response from VodaLend to address this issue through business financial products?
A: At the heart of what we do is a vision to make access to financial inclusion a reality for all South Africans through financial products that are not far removed from the daily realities of ordinary people. We understand how difficult and somewhat awkward it can be to get finance and that is why we have made this process as simple as possible.
What has come to be known as a township economy is made vibrant and alive because of business funding entrepreneurs get from us. This enables jobs to be created and for the economy to thrive, making this a direct and indirect contribution by us hand-in-hand with these budding entrepreneurs who are now able to realise their futures and aid their families.
Equally noteworthy is the trust that has been built between the entrepreneur and us because we have not made provision for bad debts beyond the industry standard, or written off any bad debts because our entrepreneurs borrow what they need and pay on time. This then says to us that we are indeed on the right path.
Find out more
Need Business Cash Advance to keep the doors of your business open? Apply here, it’s quick, simple and designed with you in mind.
