Ricochet News

Rating opens doors for SME funding

May 11, 2017
Rating opens doors for SME funding

The according of a BB(ZA) rating to Retail Capital, which provides working capital to businesses, will open up opportunities for increased funding to small business and job creation in the sector.

This is the first rating for Retail Capital, which was founded in 2011. “Being a rated Financial Institution allows us to access new pools of capital at more cost effective rates, which will benefit the SME businesses that we finance and also allow us to expand the offering across South Africa,” says Retail Capital CEO Karl Westvig.

“This will lead to faster-growing SME businesses that will employ more people.”

Global Credit Ratings (GCR) accorded Retail Capital a national long-term national scale rating of BB(ZA), which, according to GCR, reflects its small size, relatively short operating history, modest financial profile, and acceptable liquidity and returns.

While Retail Capital is able to raise funding from asset managers to provide capital to businesses, the rating gives it access to a broader pool of alternatives.

Westvig says asset managers have indicated that Retail Capital has a very advanced and sophisticated debt-funding structure for a company of its size, and this has now been borne out by the rating.

Retail Capital had raised around R200m to date through institutions including Futuregrowth, Ashburton and Gen-X Credit Opportunities Fund.

“The development of SMEs and their access to finance is critical for economic growth in South Africa. Retail Capital successfully provides this much needed finance and aligns well with Futuregrowth’s developmental preference. Its strong management team coupled with sound practices and processes further strengthens its investment case for our clients.” says Wafeeqah Mallick, Investment Analyst at FutureGrowth Asset Management.

GCR noted in its rating report that SMEs have been identified as a key engine for growth and financial inclusion. “As access to working capital is one of the primary obstacles to SME growth (which is often a catalyst for job creation), there is significant potential demand for and developmental benefits from Merchant Cash Advances,” Omega Collocott, Head of Financial Institution Ratings at GCR said.

Retail Capital was the first South African company to offer Merchant Cash Advances - where it provides companies with capital using a unique flexible repayment system linked to credit card turnover.

Collocott noted that, “Retail Capital’s management is cognisant of the potential socio-economic impact of its SME-focused financing model, and it aims to fully understand and enhance the role that Retail Capital plays in the developing South African economy,”.

Collocott furthermore indicated that, “in this context, Merchant Cash Advances could have a direct socio-economic impact through promoting job creation, and supporting women in entrepreneurship and BEE”, and that the initial success of Merchant Cash Advance financing “has been supported by the product enabling SME owners/managers to access capital, which might otherwise be unavailable.”

Retail Capital has already made advances to more than 2 200 businesses, and the growth potential for its product offering is significant. This market was growing strongly, and Collocott noted that, “the restrictions on merchants’ access to traditional credit underscores the viability of Retail Capital’s business model, as it reduces competition and the price sensitivity of customers”.

With it being the largest player in this market, Retail Capital’s management considers its scale, national presence, credit risk expertise and established customer base as its main competitive advantages.

“The process with GCR was thorough and highly professional and we are very satisfied with the rating assigned to Retail Capital,” Westvig says.