South African Retailers Increasing Credit Financing Usage, But Is It Promoting Growth?
Key Highlights :
The South African retail market has seen a significant increase in credit financing over the past eight years, but only a few sub-sectors are effectively using the capital they borrow to drive growth. New research from the Bureau of Market Research (BMR) on behalf of Capital Connect, a fintech that offers fast and flexible business funding to South African retailers, reveals that while growth in credit extension to the retail market (64% in nominal terms) has outpaced the growth of retail incomes (49% in nominal terms), the relationship between retail growth and credit extension growth is becoming weaker over time.
This indicates that many retail categories are using credit to keep their heads above water, rather than to innovate and drive growth for their businesses. Furthermore, the research shows that the relationship between income growth and credit extension is much weaker in key sectors such as food, beverage and tobacco, home and garden, and clothing and footwear. This suggests that these businesses are struggling to use credit as a significant contributor to retail income growth and are instead tapping into survival capital rather than growth capital.
Gerhard Le Roux, Head of Capital Growth at Capital Connect, states that credit is a vital lifeline and growth catalyst for retail businesses around the world. Quick access to affordable and flexible finance is essential in every stage of a retailer’s lifecycle, from starting up operations to fueling growth and accessing operating capital to survive through tough times.
“Leading retailers should be using financing to innovate, expand revenues and outsmart their competitors—not just to survive. A survey of our retail customer base last year found they named access to cash flow as their biggest challenge. This indicates retailers need access to faster, more flexible and more affordable funding to drive growth,” he said.
Le Roux adds that many merchants find that traditional lenders are reluctant to approve loans for business growth and that their underwriting processes take so long that the opportunity is often gone by the time a loan is approved. Fintech lenders are addressing this gap by offering fast access to capital. With Capital Connect, you can apply for a loan of up to R5 million from their app and the funds will be in your bank account within 24 hours, so that you never miss out on a business opportunity. That’s real growth capital that can help you take your business to new heights of performance and profitability.
In conclusion, it is clear that South African retailers have increased their usage of credit financing over the past eight years, but only a few sub-sectors of the market are effectively using the capital they borrow to drive the growth of their businesses. With access to faster, more flexible and more affordable funding, retailers can position themselves for growth and outsmart their competitors.
