20 Feb Lack of specialist lending advisors has hamstrung entrepreneurial growth
Lack of specialist lending advisors has hamstrung entrepreneurial growth
When an individual has money to invest they can access any number of certified investment advisors who will carefully analyse their needs and advise on the best way forward. However, when it comes to debt financing, especially growth finance, South African business owners are receiving none of the same treatment.
This hamstrungs the growth of small to medium business, which some researchers say make up 91% of formalised business in South Africa, provide employment to about 60% of the labour force, and account for about 34% of the country’s gross domestic product.
“As an individual business owner looking to invest money, my wealth advisor will sit down and do a full assessment of my needs. They will look at my age, my risk appetite, thoroughly go through my balance sheet, understand my tax position, check on my life cover and get a real understanding of what I am trying to achieve through the investments. Then, they will carefully analyse this and days later come back with a plan that will include multiple product offerings from a diverse range institutions. I find it astonishing that when it comes to the opposite side of the balance sheet – borrowing – none of the same care and attention is taken,” says Gary Palmer, CEO of Paragon Lending Solutions.
According to Palmer, many established entrepreneurs who are looking for growth capital find themselves in his offices after they have been turned down by one or more of the traditional lenders.
“It’s tricky for banks to deliver the kind of funding needed by growth companies. In many instances, these business owners are involved in multiple endeavours and may need access to finance on a number of fronts simultaneously. The real problem with the local market is that most institutions are promoting products, not solutions. Too little time is spent understanding the needs of the clients and designing an appropriate solution, tailored to the client’s unique requirements. They are literally forcing the client’s needs into the limited number of financial vehicles they offer,” comments Palmer.
The lending needs of established and growing entrepreneurs can be hugely complex. In many instances they will need to leverage their personal assets in order to access funding. This increases the importance of dealing with a lending partner which has access to extensive lending networks and who will take the time to properly understand the holistic needs of the client in both the short- and long-term.
“Finding the right kind of growth capital depends on a plethora of variables. Many business owners are not aware that their age may mean they qualify for attractive loans from the IDC. Similarly if their expansions will create further jobs they could qualify for certain local and international funds. We act in a debt advisory capacity in the partnership, leveraging solutions from 117 lenders in our network. We look at separate levels of gearing for different parts of the business. We actively seek out the best deals available, negotiate on the client’s behalf and work with them to structure the deal to their advantage, managing the process on the behalf. Backed by a big financial institution we’re also in the unique position where, if funding is required exceptionally quickly and is of a very short-term nature, we can provide it from our own balance sheet.”
Palmer says that successful entrepreneurs are generally unaware of all the debt financing open to them. This is not restricted to the products available, but also the means to achieve their business objectives and Palmer says it is also sometimes appropriate to help entrepreneurs find equity partners who will share the risk and the journey of the new endeavour.
“Finding the best solution for individuals means understanding their business. We have had a client approach us for equipment finance. What their business really needed was access to an asset management funding line. By sourcing an R80 million funding line we solved their immediate growth aspirations but did it in a way which made the most sense based on their mid- to long-term strategic goals.
“It’s been our experience that thousands of entrepreneurs are settling for massively inappropriate loans at unattractive terms. This is essentially hamstringing growth and job creation in our country,” says Palmer.