Entrepreneurial, owner-managed South African businesses and property individuals are increasingly looking for more value-added services and flexible financing arrangements from their lenders than prior to the economic crisis in 2008. This is according to Gary Palmer, CEO of Paragon Lending Solutions, who says that prior to the financial meltdown, clients primarily sought finance from their lender.
“As market conditions deteriorated, the client’s needs changed and are now not only asking for access to finance if they require it, but also with assistance for buying and selling of property, how changes in regulations affect their investments, how market conditions can affect their business practices and how lenders can assist them with a variety of other financial matters.”
Recent credit data from the Reserve Bank has indicated that growth in unsecured lending has slowed, while mortgage lending has only grown at less than 2% a year because banks have tightened rules around long-term lending. However, Palmer says that South Africa’s economy still offers good opportunities for entrepreneurs and owner-managed businesses if they employ the right strategy and utilise diverse value-added services.
“Smaller businesses and property individuals unfortunately do not have access to financial advice and support in the same manner as larger corporations do. These larger businesses are in the position to employ experienced staff who have established relationships with commercial banks, have additional financial advice from auditors and access to legal experts who have a thorough knowledge of that enterprise.”
As a result, Palmer says that private non-bank lenders, who are also not governed by the same regulations as the major banks, are in the ideal position to assist clients who require financial assistance via their value added services. “Private lenders are usually entrepreneurs themselves and therefore understand and can identify with entrepreneurial challenges and how to respond to them.”
Palmer says that no matter what the businesses situation, they should always consult a professional lender to assist with cash flow forecasts. “A financial oversight can potentially bring devastating financial losses if adequate planning, risk management scenarios and financial resources are not in place.”
He adds that a financier can also assist with the sale and purchase of a property to ensure that all legal and compliance affairs are in order. “Property rights and the associated legalities are also complicated issues and individuals often misunderstand what is required of them or neglect to consider what the legal parameters are when looking to finance a property deal. This is particularly important when it comes to urban development and town planning matters,” says Palmer.
Furthermore, he says that a financier would also facilitate if a client is considering buying a distressed apartment block. “The financier would only be able to lend to the client if the National Home Builders Registration Council (NHBRC) is involved and deems the building as compliant,” he says.
“However, one of the most common mistakes property owners make is that of under or over insuring because they neglected to have an appropriate property valuation conducted at the offset, due to bad or incorrect advice.”
Palmer adds, “Non-bank lenders can also assist with deceased estates to prevent any loss of capital and to protect the financial interests of the heirs. The Master’s office supervises the administration of deceased estates to ensure an orderly winding up of the financial affairs of the deceased in terms of the Intestate Succession Act, 81 of 1987.”
Finally, he says that there may be certain transactions which are more suitable for commercial banks. “The lender may also be in the position to assist with Commercial Bond Origination, by applying for a commercial loan on their behalf. The client submits a variety of financial information to the lender who will determine their eligibility and what interest rate he or she will pay,” he concludes.