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“Turnover is vanity. Profit is sanity. But cash flow is reality.” This is the catch phrase that appears on the website of six-year-old financial services provider Retail Capital.
The company, which provides unsecured funding to thousands of businesses, may be well on its way to becoming one of the biggest alternative finance houses servicing small businesses across the country.
Retail Capital CEO Karl Westvig told City Press that the company had penetrated the small business market as an alternative to traditional bank finance.
Based in Cape Town, Retail Capital is owned by a consortium of private investors and loans money to retailers who lack assets that would allow them to secure funding from the banks.
Westvig said Retail Capital was first to import the model from the UK and US, and that it had proved beneficial in light of the funding challenges faced by local businesses.
“We provide unsecured loans, but we secure them against future turnover,” he said.
According to Westvig, the model is riskier than traditional banking methods. Because the repayment is a fixed turnover-linked percentage, the company stands to benefit only if the turnover is high.
Westvig said given that the percentage was fixed, if the client’s business did not do well, this did not mean more money would be repaid but rather, that it would take more time to be repaid. So, more turnover equals more repayment; less turnover equals less repayment.
“Any retailer with a debit and credit card facility can be our client. We only look at the past six months’ turnover,” he said.
Westvig said the company also used its consultants – who total 30 countrywide – to visit the businesses, instead of having clients come to a branch, as this ensured more personal interaction.
Hence, the company does not have branches but operates via its consultants and from its offices in Durban, Cape Town and Johannesburg. Currently, it has an active customer base of about 1 000.
Westvig said Retail Capital provided working capital to small businesses mainly via debit and credit cards. Since incorporating the system, the company has advanced close on R1 billion to more than 3 000 businesses, including restaurants, retailers, beauty spas and medical practitioners.
“Our cash advance system offers a certain element of protection for the funding provider and the recipient, ensuring our sustainability and that of small businesses, many of whom have been hobbled by huge levels of debt from unsustainable repayment requirements.”
Its competitors include Merchant Capital and Cash Flow Capital. Retail Capital started with staff from the financial sector. Self-funded resources were used to supplement the monies borrowed from asset managers.
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