Standard Bank has joined forces with Merchant Capital to provide an innovative working capital solution for small and medium-sized enterprises (SMEs) by enabling them to access upfront cash advances which are repaid via their incoming point-of-sale receipts.

The new financing solution will be called Merchant Capital Advance in collaboration with Standard Bank, and is targeted at retail SMEs with a point-of-sale device and twelve months of trading history. It will be accessible within 24 hours of providing the necessary documentation to Merchant Capital, which will underwrite the cash advances. Financing will be linked to the monthly point-of-sale transactions of qualifying SMEs, with Merchant Capital permitted to take an agreed percentage of all future card sales until the initial advance amount has been fully paid.

“We were really attracted by the track record that Merchant Capital has built up in the retail cash advances space, which is quite a well-known financing solution for SMEs in the US and the UK but is still a nascent form of financing in South Africa,” said Mr Andrew Wilmot, Head of Merchant Solutions at Standard Bank. “The agility of Merchant Capital Advance will bolster our ability to serve business clients by providing a new transactional solution that further complements the success we’ve achieved with SnapScan.”

Merchant Capital founder and CEO Dov Girnun described the finalisation of the agreement as “a transformational deal in South Africa’s nascent fintech industry. Standard Bank is an established, trusted brand that offers a large-scale distribution infrastructure and decades of experience with deep-rooted client relationships. Merchant Capital brings agility, speed and innovative products to the table. I think that this model of co-creation of value, by leveraging off one another’s core strengths, is going to become more prevalent in the South African financial services sector as institutions look to take advantage of technological innovation and expand their service ecosystems.”

Merchant Capital was started in 2012 as an alternative provider of working capital for retail-focused SMEs in South Africa, where small businesses have traditionally suffered a high failure rate due to lack of funding. The new Merchant Capital Advance product will offer an innovative working capital product for SMEs, enabling them to access upfront cash advances which are repaid via their incoming point-of-sale receipts. This is ideal for business owners who have been operating for at least 12 months and have a monthly average of more than R30,000 in card sales.

Retail cash advance financing solutions are particularly suitable for businesses that are exposed to cyclical cash flow challenges due to the unique business cycle of their particular sector. For example, the restaurant trade can be highly seasonal with customer volumes dropping off during winter, resulting in a drop in income even as electricity, rates, water and staff costs remain constant.

“Another example is the beauty and hairdressing sectors, which use a lot of imported hair and beauty products,” says Wilmot. “These businesses often buy large consignments of stock before annual price increases kick in, which can adversely impact their cash flow. The agility of Merchant Capital Advance means these businesses can get access to a cash advance in a very short space of time in order to fund an investment, which can then be paid off over the remainder of the business cycle.”

The new product also has significant potential for application in the franchising trade, where restaurants have to be retro-fitted every three to five years. By using Merchant Capital Advance, franchises and other SMEs can access the funding they require by simply completing a quick online application process that does not require them to pledge assets.

“Some 90% of new jobs will be created by SMEs by 2030 according to the National Development Plan,” says Wilmot. “As a major banker of emerging and established businesses in South Africa we want to provide the financing solutions that will enable the growth in this sector that will make this possible.”

South Africa has over 2.25 million SMEs of which just under 1.5 million can be classified as informal, according to the Small Business Development Agency (SEDA). These formal and informal small businesses contribute anywhere between 52% and 57% to South Africa’s GDP, according to SEDA’s estimates.

Merchant Capital Advance in collaboration with Standard Bank is available to Standard Bank customers from 1 June 2018.

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