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How to secure SME funding from non-traditional lenders
Amid the global economic crisis that is currently underway, many businesses face the threat of securing funding to sustain their businesses. The most vulnerable businesses in South Africa are the small and medium enterprises and joining CNBC Africa to unpack what this will mean for bank lenders and non-traditional lenders is Gary Palmer, CEO of Paragon Lending Solutions.
Thu, 11 Jun 2020 10:40:41 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Increased inquiries and challenges for SMEs seeking funding
- Anticipated long road to economic recovery post-COVID
- Shift towards equity financing and private equity investment
Amid the global economic crisis caused by the COVID-19 pandemic, many businesses, especially small and medium enterprises (SMEs), are facing challenges when it comes to securing funding to sustain their operations. The situation is particularly precarious in South Africa, where the economic landscape has been significantly impacted. Gary Palmer, the CEO of Paragon Lending Solutions, shed light on the current funding scenario, discussing the implications for both traditional bank lenders and non-traditional lenders. Palmer highlighted the surge in inquiries and applications from distressed companies seeking financial assistance. While there are some promising transactions in the pipeline, many businesses are struggling with cash flow difficulties. This challenging environment has led to a greater need for advice on navigating relationships with banks and non-bank lenders.
Reflecting on the comparison between the current crisis and the aftermath of the 2008 financial downturn, Palmer expressed concerns about the severity of the current situation. With the South African economy projected to contract and substantial job losses anticipated, the Reserve Bank faces an unprecedented shock. Despite the emergence of non-bank lenders in recent years, traditional banks remain the primary source of lending. However, banks are currently overwhelmed with COVID-related challenges and loan restructurings, impacting their capacity to support new transactions. The pandemic has provided a temporary reprieve for some businesses, allowing them to negotiate payment deferrals with banks. Still, Palmer warned of the looming economic reality post-COVID, emphasizing the anticipated long road to recovery.
One significant consequence of the current crisis is the issue of mounting debt burdens. While banks have provided relief measures and interest-free loans to mitigate immediate financial pressures, the long-term implications of this debt accumulation raise concerns. As businesses struggle to repay existing debts alongside new facilities, the sustainability of many SMEs and property developers is called into question. Palmer acknowledged the critical role of the Reserve Bank and banks in providing vital funding to support SMEs and stimulate economic growth. However, he underscored the challenges ahead as businesses grapple with the burden of increased borrowing costs and limited collateral options.
Palmer also touched upon the evolving funding landscape, noting the potential shift towards equity financing. While debt remains a crucial form of funding, private equity investment is expected to play a more significant role in supporting viable businesses with weakened balance sheets. As large private equity firms eye opportunities to inject capital into resilient SMEs, the market may witness a transition towards equity-based solutions to bolster businesses through the recovery phase.
In conclusion, Palmer emphasized the need for resilience and strategic financial planning amidst the ongoing economic turmoil. While challenges persist in securing funding, innovative approaches such as equity financing and partnerships with non-traditional lenders could offer viable pathways for SMEs to weather the storm. As businesses navigate the uncertain economic terrain, adaptability and prudent decision-making will be crucial in safeguarding their financial stability and long-term sustainability.
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