Chartered accountant and CEO at Paragon Lending Solutions Gary Palmer believes this gap in the market is holding back small and medium enterprises.
According to Palmer, when an individual has money to invest, they can access any number of certified investment advisers, 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 not receiving the same treatment.
This hamstrung the growth of small to medium businesses, 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 GDP.
“As an individual business-owner looking to invest money, my wealth adviser 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. 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 Palmer.
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He says 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. They are literally forcing the client’s needs into the limited number of financial vehicles they offer,” says Palmer.
He says 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 that 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.
According to Palmer, 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,” he says.
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.
“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.