JOHANNESBURG – As South Africa's economy continues to struggle, the disconnect between traditional lenders and entrepreneurs seems to be widening, independent lender Paragon Lending Solutions has said.
This is especially highlighted when it comes to growth finance, with many business owners unaware of products such as mezzanine finance or, if they are, not sure how to access it, Paragon CEO Gary Palmer said.
Mezzanine debt is the middle layer of capital that falls between secured senior debt and equity and is lent based on a company’s ability to repay the debt purely from cash flow.
It is particularly attractive to established and growing companies as business owners do not have to part with equity to secure the deal and terms tend to be more flexible.
Palmer said while South African banks were among the finest in the world, traditional institutions were by nature and regulatory requirement fairly conservative in their lending practices and likely to become more hawkish as the economic environment got tougher.
He said the country's alternative lending sector was not as mature as that in developed countries where there were qualified intermediaries between banks and clients and the role of independent finance broker was common and respected.
"This is sadly not the case in the local markets as banks have their own sales teams," said Palmer.
"An unfortunate consequence is that banks will often not think to refer on clients who may not have made their strict criteria, but who may be appealing to a non- traditional lender, impinging deal flow and stunting economic growth."
Regardless, he said with over 100 alternative lenders available, business leaders were in a great position to find that understood their business and could offer a deal to suit their growth strategy.
Accessing suitable alternative or mezzanine funding could significantly boost a company looking to grow without diluting shareholding through an equity deal.
"While South Africa may still be in its infancy when it comes to alternative lending and our economy may be little lacklustre at the moment, there is every reason for established companies to seize opportunities when they see them – knowing that if the deal is right, the finance can be found," Palmer said.
African News Agency (ANA)