A notable trend is emerging among South African entrepreneurs and small to medium-sized enterprises (SMEs) in their quest for financing is their increasing reliance on pawnbrokers to secure much-needed capital.
Amidst the growing challenges of accessing traditional finance, Lamna Financial, a leading asset-based lender, has observed a significant uptick in business owners using their services to unlock the value of their assets.
Charles Meyerowitz, CEO of Lamna Financial, commented on this trend, stating, “Entrepreneurs are often faced with limited access to traditional financing options, especially in the current economic climate. This has led to a growing number of business owners turning to pawnbrokers as a viable alternative for securing quick and flexible funding.”
He continues: “By leveraging high-value assets such as trucks, vehicles, luxury watches, fine art, and high-end vehicles, to obtain the capital needed to sustain or grow their businesses. Most of our clients are entrepreneurs and often require funding quickly to operate at the level they need to.”
What this means, he explains, is that often, an entrepreneur is working on projects or contracts worth millions of rands but during the interim period while the projects are being realised, they are required to pay out costs to see these projects come to fruition. “Pawnbroking provides these types of business owners with short-term solutions to fund these projects,” he said.
According to the World Bank, SMEs represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies.
A Growing Need for Alternative Financing
South Africa’s entrepreneurial ecosystem, while vibrant, continues to grapple with significant barriers to access traditional forms of finance. According to recent reports, many SMEs struggle to meet the stringent criteria set by banks and other financial institutions, leading to a gap in available funding. This situation has been exacerbated by the economic fallout, which has made securing loans even more challenging.
“Entrepreneurs and small business owners need agility in today’s market,” Meyerowitz continued. “Traditional lending processes are often slow and cumbersome, which doesn’t align with the fast-paced nature of running a business. Pawnbroking offers an efficient solution—business owners can access funds within hours, using assets they already own.”
“It’s no surprise to learn that 35 percent of all loans made to SMMEs are in the form of personal loans or asset-backed loans, as these entrepreneurs find it too difficult to access funding as a business,” Meyerowitz explained. “From Lamna’s perspective almost 95 percent of our clients are successful entrepreneurs, and when they loan against their assets it is usually for a period no more than three months with a 99 percent repayment rate.”
He said this is quite telling in terms of the financial landscape for SMMEs, especially as we have seen a 30 percent increase in loan requirement since the start of the year.
“In our experience when a small business owner becomes a client of ours, they tend to return regularly to service their short-term funding shortfalls as the need arises,” he added. “What this means is that they start to use pawnbroking or asset backed loans as a legitimate source of ongoing funding in their businesses operations.”
Examples of Assets Used in Business Financing
Entrepreneurs are increasingly leveraging personal and business assets to secure funding. High-end items such as:
- luxury watches
- art collections
- jewellery
- vehicles
- trucks
These assets provide the collateral needed to secure short-term loans, allowing entrepreneurs to inject capital into their businesses without the lengthy approval processes typical of traditional loans.
World Entrepreneurs Day: A Focus on Financial Solutions
As World Entrepreneurs Day shines a spotlight on the achievements and challenges faced by entrepreneurs worldwide, Lamna Financial emphasises the importance of innovative financial solutions in supporting business growth and sustainability.
Meyerowitz concludes, “Access to finance is a critical component of entrepreneurship, and in a market like South Africa’s, where 40 percent of our GDP is reliant on these SMMEs with traditional avenues being limited, alternative financing methods such as pawnbroking are proving essential for many business owners.”