Against the backdrop of a recession in South Africa, Retail Capital CEO, Karl Westvig, says client information reveals growth in informal sector turnover across a number of industries.
“We believe that growth in the informal sector is outstripping that of the formal sector,” said Westvig.
As a large proportion of the businesses it funds are women- and black-owned, there is evidence that entrepreneurs who have previously been excluded from access to finance are now enjoying success now, the chief executive said.
Retail Capital provides working capital to small businesses based on real time information on credit card transactions.
“R1 billion has been extended to a range of businesses including food trucks, hair salons, restaurants, spas and franchised retail stores. Many of these businesses have not been able to raise funding in any other way, other than to go to unscrupulous lenders,” said Westvig.
“We have also estimated that for every R160,000 we lend, we create a new job. This means that 625 jobs have been created purely by enabling small businesses to get the funding they need for working capital requirements or expansion opportunities.”
StatsSA put the country’s unemployment rate at 27.7% in the first quarter of 2017 – the highest rate observed since September 2003.
The expanded unemployment rate – including those who are unemployed and not actively seeking work, also hit a new high of 36.4%.
Retail Capital said its system enables a funding alternative to entrepreneurs who have previously been turned away by banks. It allows for flexible repayment options based on sales cycles of the particular businesses it is funding.
“This creates significant opportunity for small business owners to focus on their business and grow volumes or look for expansion opportunities rather than spend their time frantically trying to repay debt or keep the business alive after debt repayments have eaten away at any cash reserves they might have had.”
“In the past six years since starting the business, small businesses have had the benefit of R1 billion in funding they would have been unable to get through traditional channels,” Westvig said.
According to previous findings by World Wide Worx, there are an estimated 650,000 small businesses in South Africa, employing around 7.8 million people.
Estimates place the GDP contribution of small businesses at between 52% and 61%.
A survey by World Wide Worx found that 63% of small business owners report using personal savings while 20% found investment or a loan from a family member, partner or friend. Only 6% turned to business angels or venture capitalists.
The initial start-up funding required was below R100,000 for more than half (62%) of businesses surveyed, with only 4% raising more than R1,000,000, the report said.