How small business funding has changed in the past year

Fintech company GroWise Capital, a specialist small business funder, has identified four 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.

As an alternative short-term business funder that focuses on offering SMMEs access to fast and flexible funding tailored to their needs for working capital, GroWise Capital offers advances ranging from R35 000 to R3 million, with terms of between 6 weeks to 12 months.

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 created a different approach to mitigating risk, largely due to understanding the cashflow requirements of small businesses. “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,” says Strimling.

Trend 1: 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.”

Trend 2: 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.

Trend 3: 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.”

Trend 4: Growth of GroWise Capital

GroWise Capital has also experienced tremendous growth over the last 12 months. Strimling says to keep up with the increased demand for business funding, the company hired experts across a multitude of business sectors to ensure that it provides speedy funding solutions and unmatched service.

“In 2022 we have been able to fund successful applicants more than 50% faster compared to last year thanks to our progressive underwriting, advancements in tech and our funding specialists. We are also retaining more customers, which is a good indication of overall customer satisfaction and our ability to meet our clients’ needs as they change.”

GroWise has 5-star Google reviews that reflects clients’ views about its service offering. “We have assisted countless clients, who all need funding to fulfil different needs, from urgent funding in a cashflow pinch, to working capital to assist with a client’s growth trajectory. The common denominator is speed and service.”

A bakery recently approached one of the company’s funding specialists when it needed additional cashflow to urgently replace its primary oven to stay in operation. This client was funded within 45 minutes.

The elephant in the room: load shedding

Load shedding especially affects SMEs who now have to find funding for alternative energy, such as generators and fuel.

Strimling says larger applicants already tend to have generators and inverters in place, but there have been applications from smaller businesses to assist with purchasing alternative power solutions, such as solar, particularly in the restaurant space.

Strimling says GroWise Capital recently assisted a large restaurant franchise to go off the grid with solar power. “It needed a large cash injection and again this was an urgent need that we were able to fulfil.”