South Africa is one of the world’s most promising markets when it comes to SMEs, with the country playing host to an estimated 2.4 million of them. That vast number is also putting a strain on the country’s credit gap, which sits at roughly R86 billion. The result is that the number of SMEs in the country is decreasing each year as access to financing becomes more difficult.

Aiming to address this issue is fintech startup Fundrr, with the lending platform ambitiously stating that it wants to assist with R1 billion worth of South African business growth over the next five years.

If they do so, Fundrr would indeed have disrupted the financing market in South Africa, and potentially become the go-to lender for SMEs in the country.

What’s broken in the system

Fundrr’s founders, Idan Jaan and Jarred Noche have experience in the SME sector, with Jaan in particular having previously worked in a group which had 80 SMEs in its portfolio,  hardly any of which were able to access bank funding.

“Those that applied for funding would wait 12 weeks for a decision, they had mountains of bureaucracy to get through, and even alternative lenders couldn’t help,” explains Jaan.

“It also took too long for a decision and funding was too expensive to be viable,” he adds.

This is something that Noche has also seen unfold locally, noting that many SMEs close their doors within three years as they cannot gain access to the necessary funding needed.

“Banks have no idea how to underwrite a small business because they use traditional sources of information which don’t give a true picture of the state of the business. For instance, they expect small businesses to have audited financial statements, yet many SMEs have no need for audited financials and can’t afford them,” says Noche.

How Funddr operates

So how is this pair going to reach their ambitious goal with Fundrr?

The answer lies in an automated credit model. Mores specifically they developed an automated credit model that analyses close to 100 data points (including factors like social media presence) to provide a more complete picture of a small business and its growth possibilities. This produces a Fundrr score, and on this basis, they are able to provide loans from R20 000 to R500 000.

Since kicking off operations in June last year, Fundrr will fund South African businesses that have at least a 12-month track record, and a minimum of R1 million turnover or asset value.

They’ve also tried to make the financing experience and quick and seamless as possible. The application and onboarding are completed online in under eight minutes, they explain, and responses are provided within 24 hours.

Along with developing underwriting models for different industries, Fundrr notes that their loan repayments are also uniquely tailored.

“We analyse the cashflow patterns of the business. On this basis, we recommend a suitable payment structure collecting repayments either daily, weekly, bi-monthly or monthly over a 3 – 12 month repayment period,” says Jaan.

What’s next for Fundrr

Whether Fundrr can indeed reach its goal remains to be seen. For South Africa to not only have a vast number of SMEs operating locally, but also be in operation for a number of years, proper financing and funding needs to be in place.

“One of the biggest impediments to the growth of SA’s SMEs is a dearth of funding,” adds Dominique Collett, head of AlphaCode.

“We are seeing that Fundrr is able to fill that gap in an extremely innovative way using technology and by rethinking the limitations of the incumbents in a largely staid credit environment,” she concludes.

We’ll have to wait until 2024 to see if Fundrr has reached its R1 billion target, and hopefully surpassed it.