Alternative lenders ‘funding more online businesses than ever’ as e-commerce booms

The South African e-commerce sector is booming – and it’s attracting growing numbers of SMEs and retailers looking to establish an online business, with a surge in requests for funding from the sector in recent months, says alternative lender Merchant Capital.


A study by World Wide Worx shows that online retail in South Africa grew by 66% in 2020, doubling in just two years as consumers avoided shopping malls and stores in the face of the Covid-19 pandemic. As a result, the sector is attracting numerous new entrants and existing retailers looking to diversify their operations, said Merchant Capital’s Chief Relationship Officer, Ryan Cohen.


“There’s no doubt that moving online presents real opportunities for local businesses, including low overheads, the ability to market their products virtually and a lot more control over the selling process. But just like any other businesses, they need funding for set-up costs and working capital, and alternative lenders are ideally placed to meet their needs for flexible and agile funding,” said Cohen.


In recent years, cash flow lending has become an increasingly popular financing product for brick-and-mortar SMEs looking for capital to finance costs like payments for salaries, rent and inventory, thanks to the fact that it is repaid by the business’s future cash flows. However, this funding method is proving equally effective for online companies looking to build their businesses in the current market.


“When it comes to funding, brick-and-mortar retailers have traditionally been seen as totally different entities to online merchants. But the process of repaying their working capital loans is largely the same. In a physical store, the repayment is channelled through the POS bank’s back end system; online, the payment mechanisms might be different, but the repayment percentage split for each transaction happens in much the same way,” said Cohen.


Successful applicants get access to funds in as little as 48 hours, with repayments based on a set percentage of each transaction in future months to provide for flexibility during periods of low turnover. As with brick-and-mortar SMEs, online businesses can then access additional capital once they have repaid 70% of the cash advance. Importantly, the cash flow lending model means small online businesses will never be left with a huge debt hanging over their heads, as their repayment levels are tied to their turnover.


“Ultimately, we see a significant opportunity to boost the online retail sector – and in the process, the broader South African SME sector – by providing simple working capital solutions that are based on sophisticated technology, and therefore far easier to access and use,” said Cohen.


Merchant Capital Chief Relationship Officer, Ryan Cohen

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