Poll: SA business owners to look to non-bank lenders for financing

All indicators are that 2015 is set to be a challenging economic year for businesses as banks are likely to continue to tighten up on loan requirements due to factors such as rating agencies downgrades, increasing consumer debt, tax implications and price hikes – all experienced during 2014. This is according to the results of the Paragon Lending Solutions poll* which surveyed property investors and business owners on the feasibility of businesses obtaining loans from banks and non-bank lenders.

The poll revealed that over 50% of respondents have experienced delays in obtaining bank finance, which have caused them to lose out on deals or to obtain less favourable terms. Also, 55% of participants have needed short-term (6-12 month) interest-only loans previously and are willing to pay a premium for a 36-hour credit decision and an access facility with flexible repayment terms.

Gary Palmer, CEO of Paragon Lending Solutions, says that the survey results can be attributed to the growing pressure on banks caused by past and current economic stress and strict lending regulations, which will significantly impact business owners who need to secure finance for their businesses in 2015.

Stricter lending criteria in the pipeline 

“Potential interest rate increases at the end of 2015 will impact the domestic economy negatively, placing further stress on local business owners, putting additional pressure on them to meet monthly instalments required by the banks. As a result, funding is expected to become more difficult for South African business owners to secure timeously, if at all. “Business owners need to make financial provisions for the current economic climate in order to take advantage of business opportunities, in light of the fact that banks may impose stricter lending criteria in 2015. Therefore, owners needing funding provisions to protect their businesses from the damaging financial effects of market fluctuations, will need to look to sources other than banks to do so next year. This means seeking financial advice and sourcing additional funding from alternative sources who will meet their requirements quickly and reliably.”

Palmer says that Paragon has experienced an increase in investors opting to apply for short-term, or bridging finance, in anticipation of a bank loan or transfer of property. “This is because of its flexible terms and the fast turnaround time, which can be approved within three days of meeting a client, where as banks can take as long as three months.”

Alternative lenders a viable option 

The survey further revealed that over 62% of participants would use traditional bridging finance when selling their property. Palmer explains that as a result of the banks’ conservative lending practices and their slow turnaround times, many buyers of properties are not meeting their deadlines to issue guarantees for the purchase of properties. He says that the risk for the purchaser is that they lose their deposit. “Should the deal fall through and the seller sells the property for a reduced value, then the defaulting purchaser may be liable for the shortfall. Therefore, property developers with a significant asset base are finding themselves in a cash flow crisis and unable to take advantage of opportunistic purchases because banks will not approve the loan in time.”

Palmer recommends that property buyers and business owners who are experiencing similar hurdles in securing finance quickly, look to an alternative lender who could issue them with a formal bank guarantee within seven days. “Our average turnaround time is 7 to10 days for a guarantee to be issued. Most reputable lenders should have similar terms. Once the transfer occurs then the lender can work with the client to secure long-term bank financing,” says Palmer.

*Poll sample size: Over 100 surveyed.

This article is based on a press release supplied by Epic MSL Group on behalf of Paragon Lending Solutions.