Dov Girnun
Innovation can be hard to define. For every business and solution it means something different, something idealistically different. In the case of Merchant Capital it is this quality that makes them stand out as a leader in the FNB Business Innovation Awards 2015 and is embedded into their business culture and its remarkable solutions.
Merchant Capital is an organisation that was designed for entrepreneurs, by entrepreneurs. It is a new and dynamic business that has been tailored specifically for the South African market. It came into existence as a way of supporting the beleaguered small to medium enterprises (SMEs) in South Africa through the provision of working capital, to assist in their growth and development.
“The business was founded by entrepreneurs who understand the pain and difficulty that other entrepreneurs face when trying to grow their business and raise working capital,” says Dov Girnun, founder and chief executive of Merchant Capital. “The accessibility of credit for SMEs in South Africa has become extremely difficult — which is a global phenomenon — and the latest statistics show that one in three business owners is turned down by traditional financial institutions when applying for access to working capital.”
This working capital is essential for the growth and sustainability of any business, especially the SME. Through these funds, the business can take advantage of opportunities, resolve unexpected challenges and ensure the steady development of the business. Merchant Capital is very much aware of the problems facing SMEs in South Africa and its innovative business model has been designed not only to support the SME, but also to align with the SME to ensure its success.
“We identified this as a significant niche in this market: a financing gap,” says Girnun. “Just to give some perspective, there are 2.8 million SMEs in South Africa, of which a million are formally registered. The latest Finscope study indicates that 40% of that million has access to finance, which leaves leaves 600 000 formally registered SMEs looking for finance. They typically borrow around R100 000, which means there is a R60-billion funding gap, and we launched Merchant Capital to capitalise on that exact gap.”
Merchant Capital partnered with Merchant Cash and Capital, one of the leading providers of Merchant Cash Advance products in the United States that has been running since 2005. Merchant Cash and Capital has disbursed more than $1-billion to more than 20 000 SMEs since it started and was an ideal partner for Merchant Capital in South Africa.
“The Merchant Capital solution is certainly a unique, disruptive and frictionless way of ensuring that the SME gains critical cash flow without crippling the business with extensive debt and unexpected charges,” says Girnun.
“We are the pioneers of the merchant cash advance industry in South Africa with our innovative cash injection product and it is extremely quick and simple for the SME to access,” says Girnun. “It is totally different to what a small business owner gets from a traditional bank. What we do is provide a cash advance, based on the previous 12-month card turnover through their point-of-sale machine. Our cash advance is made upfront as a lump sum with no fixed interest rate and no fixed repayment term. What we do is hold back a small, fixed percentage of their daily card transactions until the cash advance is paid off.”
Merchant Capital provides the funds the SME requires to take the next step in its growth and collects the percentage of card sales until the amount is repaid. Once 70% of the cash advance is repaid, the SME automatically qualifies for a re-advance on the same or better terms than the first, allowing the SME to further grow their business. Currently 80% of clients renew with Merchant Capital.
“The amount that we provide to the business is agreed on upfront and it never changes. It can take the SME three months to pay it back or it can take them three years. It is a genuine partnership model because in a good month when the business is making a bigger turnover we collect more, but in their slower months — which invariably happens to any business, thanks to external influences — their payments reduce accordingly. We hold their hand and feel their pain with them when their business dips,” says Girnun.
The structure of the Merchant Capital system is certainly not one that could be described as typical, but it does tick the boxes that define the concept of innovation. For Girnun, however, it is not just the solution that Merchant Capital offers to the SME that is of innovative value; it is also the culture of the organisation.
“This is something we drive at every turn,” says Girnun. “We have constant brainstorming sessions that include everyone from the receptionist to the chief executive. Every person in the business has the ability to contribute ideas and, if these ideas make sense, we implement them. And we give our people full accountability, so they can run with the idea as their own project — with feedback sessions and direct remuneration if their idea proves to be successful.”
The internal environment is as committed to fostering innovation and development as the solution itself. Through these sessions and the freedom offered to employees to truly deliver on their ideas, the business continues to evolve and develop new ways to provide quick and simple access to working capital.
Girnun also defines innovation as the ability to identify a gap in the market and to use technology to leverage that gap. And it is this belief that underpins the Merchant Capital product offering. Quick response times, leading technology, entrepreneurial management and control — these are all part and parcel of the SME’s partnership with the organisation.
“With us you will get approval on your cash advance within 24 to 48 hours, when typically you can wait two to three months if you go to a bank, and very often the answer is no,” says Girnun. “Through the use of our proprietary technology we are able to speed up this process to a point where our clients can get answers in the timeframes they really need. We have found an inventive solution to a real problem that is impacting SMEs across the country.”
The application process from Merchant Capital is quick and simple, with a high approval rate. Many SMEs have gained access to much-needed credit, which they would previously have been unable to do with traditional methods. The repayments have also been cleverly structured to ensure the stability and sustainability of the SMEs, and are flexible enough to stay abreast of the businesses’ turnover. There is no specific repayment period and the SME does not pledge assets or have to pay any additional costs and charges. It is a completely transparent solution that is certainly targeted at a huge market niche.
For Merchant Capital, its innovation extends beyond the client and the employee; it has also ensured that the business has rich partnerships that can be leveraged for growth and scalability. The Capricorn Group (which includes Hollard Insurance, Clientèle, Nando’s and Direct Axis) invested in Merchant Capital in December 2013 and is the shareholder of reference; bringing financial and strategic input to the business.
“Innovation is in our fabric and our culture, but it is also inherent in the business as a whole and from a scalability perspective,” says Girnun. “We have created extremely unique and strategic relationships in all the verticals that we work with, so from a distribution point of view, we leverage off our partners. This gives us a remarkable ability to scale the business.”
Merchant Capital has experienced significant success since it started with a list of clients that includes more than a few well-known names. Brands such as Nando’s, Engen, Sorbet and Spur appear on the list of successful SMEs that have benefited from Merchant Capital’s solution.
“Funding can be for anything that the SME sees fit in their own unique situation. The business can use the funds to hire more employees, buy new equipment, refurbish their store, buy more stock and even do some marketing. Our satisfied customers have had nothing but good things to say about their partnership with Merchant Capital and we plan to carry on giving them exactly what they want — working capital when they need it the most,” says Girnun.