Old Mutual has agreed to buy a minority stake in Preference Capital, a specialist provider of funding solutions to the small and medium enterprise (SME) market.
The deal, subject to the fulfilment of certain conditions and approval by competition authorities, gives Old Mutual the option to increase its shareholding in Preference Capital to a controlling stake over time.
The transaction, for which no amount was disclosed, was announced on Wednesday, shortly after TymeBank unveiled its move into small business banking via a 100% buyout of SME-focused lender Retail Capital.
Old Mutual’s planned investment in Preference Capital will enable it to partner with a growing base of SME customers in SA while expanding its product offering into many new lending solutions. Preference Capital’s product suite includes cash-flow capital, alternative finance solutions under the Bizcash banner, capital asset finance, overdrafts and digital business management tools such as invoice management and payment.
“There is an estimated R300bn-R500bn funding gap for SMEs in SA,” said Nobesuthu Ndlovu, a director of Old Mutual’s SME unit. “Access to affordable and flexible funding is one of the biggest challenges business owners face, and the investment in the lending specialist will address this directly.”
SA’s SME lending market is rapidly becoming more competitive with newer entrants making aggressive moves into the segment, often regarded by traditional lenders as underserved. While business-only bank Sasfin, an established player in the market, has pledged to shake up business banking in SA, its favoured segment is medium-sized corporates seeking loans of R20m-R150m, well above the needs of most small businesses in SA.
As most SA owner-managed small and microenterprises have annual turnovers of less than R10m, they must often rely on personal loans taken out by their founders at retail banks not necessarily attuned to their unique needs. That has encouraged players such as African Bank, which is buying Grindrod Bank for R1.5bn, to expand into business banking with retail lending giant Capitec, which is making its own foray into the sector after its 2019 buyout of business lender Mercantile Bank.
“SMEs require a unique solution that understands their constraints and funding requirements,” said Preference Capital CEO Jonathan Goldberg. “To grow, SMEs need finance, which creates more jobs and greater prosperity. Together with Old Mutual, we believe that we can support more organisations seeking partners who can innovatively facilitate their growth.”
theunisseng@businesslive.co.za
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