Fintech companies are bridging the financing gap

Melitta Ngalonkulu: Welcome to the weekly Small Business Conversations podcast with myself, Melitta Ngalonklu.

Now, the one thing for you who might be entrepreneurs is that there is a constant struggle for small and medium enterprises (SMEs) to access capital. Now, there is another option for obtaining this capital without having to visit traditional banks. Fintech companies are largely closing the funding gap for small businesses as traditional banks remain stringent on lending policies, stifling growth prospects for small businesses.

Today we have Trevor Gosling who is the co-founder and CEO of Lulalend. Lulalend is an online lending platform for small businesses. Hi Trevor, I’m sure that many entrepreneurs out there are actually asking themselves what are fintech companies?

Trevor Gosling: That’s a good question for them to be asking. I think the biggest thing is [that it’s about] putting technology into the finance realm; so how technology can improve the space. In our instance, we’re a lender, so we utilise technology to be able to face businesses a whole lot quicker, to be able to understand the fundamentals of a business, whether they’re a healthy business and should be lent to. We don’t rely on older methodologies and more analogue approaches that you typically find coming through banks and other traditional institutions in terms of how they fund. So it’s really about using technology and all the access data and the ability to build up machine learning models and that sort of thing to be able to service the segments of the market.

Melitta Ngalonkulu: Trevor, based on your research, what is the funding gap and how can it be addressed?

Trevor Gosling: The funding gap is sizeable. I actually put together a report a couple of months back where it identified the funding gap in South Africa alone for the SME segment of the market to be around $23 billion [R352 billion]. So it’s a pretty sizeable gap that needs to be overcome. I think there are multiple ways that it needs to be funded, so not only through the banks, though we do expect the banks as the incumbents in the space to be able to, to step up and handle a large part of it.

But it is about bringing new and innovative different ways to be able to finance this segment of the market. So it is in many ways, as I spoke about, about devising technology to be better able to fund it and give assistance, or getting previous businesses that haven’t been in a financially inclusionary space to be able to take advantage of all a situation.

So for example, if we look at merchants, which in the past have done cash sales, then looking at an option like as Yoco for instance, who accept debit transactions. Already when you start accepting card transactions, you’re developing a transactional history on your business. With that data, now a lender can access that data and be able to provide funding off the back of that. So it’s innovative approaches in terms of how we build up an ecosystem and look to access this market. But the problem or the solution that needs to be addressed is pretty sizeable.

Melitta Ngalonkulu: How easy is it to access funding through fintech companies?

Trevor Gosling: It’s definitely a lot easier than through a more traditional approach. Obviously I can only speak for Lulalend, but we’re able to say yes to customers a whole lot more than traditional institutions. Your banks would typically want to see some sort of collateral in place or they want a bulk set of financial statement data, tax data around your business. Whereas we go to the core fundamentals and we analyse what things – what we believe and what our machine learning modelling has shown – to be the most accurate predictor of your business performance. So we go straight to that core to be able to understand who you are as a business. We’re not looking at the more analogue paper-based submission information that can be provided. And we go off the back of the data that we look at to be able to more readily fund.

Melitta Ngalonkulu: Now as an entrepreneur listening on the show, what are the key steps that I should follow to receive funding?

Trevor Gosling: So there are some minimum requirements that a business needs t0 meet. You need to have a bit of a track record. You need to have been trading for around 12 months. You need to be seen with transactional data going through your bank accounts or going through a point of sale device, something similar to that and we need to see a certain amount of activity. But once you have that activity in your business, that there is revenue, that there are expense payments going out, you’ve been trading for a year, then you’re able to access funding and your business is ready. From there it’s a very simple approach. I would go to our website and from there it is a three-minute application process for you to be able to access funding.

Melitta Ngalonkulu: How can entrepreneurs do their due diligence when applying for funding so they can ensure that they are working with responsible lenders?

Trevor Gosling: With a segment of the market that is currently unregulated, to a large extent there is the ability or opportunity for unscrupulous lenders to enter the market. So it is important that a lender or at least a borrower understands who they are taking money from. So we’ve registered through a body called Sasfa [South African SME Finance Association], which basically acts as an association that provides confidence in the lenders that are there are members on the platform. So any member that accesses their platform or at least registers on that platform needs to have gone through a smart audit and shown that they are responsible lender, that they are transparent in their pricing and that they really have the best interests of the small business owner at the other end.

We definitely encourage that you Google-search who you’re taking money from them and understand the bodies that they are affiliated to and what does that body stand for and what they’re trying to get out.

Melitta Ngalonkulu: A big thank you, Trevor Gosling, on giving us insight on how entrepreneurs can make access of fintech companies to access capital.