Why SMEs are looking outside traditional lenders for business funding

Fintechs are steadily encroaching on traditional banking. A study by McKinsey found that in 2022, 35% of SMEs in the US and 20% in Asia considered using fintechs for business funding, better pricing, and integration with their existing platforms.

The same study found that emerging markets like SA are expected to play an outsized role in the growth of fintechs in the coming years.

Lula (formerly called Lulalend) is one of a crop of SA fintechs tackling a market neglected by the banks – business funding for SMEs.

It takes just minutes to apply for up to R5 million in business funding in the form of a revolving capital facility or a capital advance.

The Lula Revolving Capital Facility works just like a revolving loan from a bank, but there are no monthly account or admin fees, and you only pay for what you use.

The attractiveness of the revolving capital facility is that it allows business owners to acquire machinery or other items of capital equipment needed to expand the business and repay the facility as cash starts to flow. The revolving facility allows the SME to draw down on funds repeatedly as cash flow needs dictate – for example, during periods of cyclical sales decline.

The Lula Capital Advance is a once-off lump sum that gets repaid over three, six, nine or 12 months. There are no early repayment penalties, and the fees are fixed.

This is suitable for companies that want to seize opportunities for expansion without having to navigate the banks’ labyrinthine credit approval processes. Fintechs like Lula can approve lending in as little as 24 hours – versus up to months it takes for banks.

Lula is fully digital and is open to any business. There are no branches, and a funding application can be completed online in a few minutes.

Smoothing roller coast cash flow

Managing a cash flow cycle can be a bit of a roller coaster ride for small enterprises, something that Rick Grantham, joint chief executive at Deal Leaders International, has experienced. Deal Leaders International is a sales and advisory business, occupying the broader mergers and acquisitions space.

Grantham points out that many businesses miss opportunities to expand because of lack of funding, something Deal Leaders has been able to avoid, having partnered with Lula for funding.

“We’ve bootstrapped this business all the way to get it to where it is. It’s all been shareholder funded. And we realised ‘Actually we’ve got to a maturity where we can we don’t have to keep putting our hands in our pockets every time the business goes through a cash flow cycle’.”

The business approached its bank for an overdraft, which has still not been granted. So it approached Lula.

“Instead of having to put our hands in our pockets, we can get through these cycles and not feel that stress of ‘Hold on, you know, we took a dividend; now we must put the money back’. It doesn’t have to happen like that,” says Grantham.

Getting access to the right funding at the right time allows businesses to form a growth strategy and stick to it. For example, businesses in the retail sector need to stock up months ahead of the festive season. They fund this either through reserves accumulated in prior months or shareholder loans.

There’s a huge segment of the SME market that is bypassed by the banking sector because it does not satisfy their risk profile. This is where companies like Lula are able to step in and provide rapid access to funding for growth, or to see the company through a seasonal slump in cash flow.

Grantham says the most successful distribution businesses he has seen are those that are opportunistic – seizing the opportunities as they arise. Only those with the ready access to cash flow are in a position to seize these opportunities. Big banks don’t take the time to understand small business, adds Grantham. “Lula took the time to understand our business.”

Instead of dealing with an impersonal chatbot, customers deal with a human whose job it is to fully understand the business and its cash flow cycles.

Many businesses stunt their growth by adopting rigid policies that forbid any form of outside funding, even short-term funding for specific market opportunities that arise. The flexibility of fintech business funding of the kind offered by Lula exposes the short-sightedness of this approach.

Brought to you by Lula.

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