Kisby SME fund has initial R250m in “lifesaver” loans – seeking entrepreneurs with dreams of AltVest, CTSE listings
It's been a year and a half since the Kisby SME Fund announced its intention to raise capital that would support high quality South African SMEs hammered by Covid-19 – and in need of low-cost loans. Its initial call to action attracted thousands of requests, with 350 companies having been short-listed. Getting the Kisby train rolling took time, but in this podcast co-founder Warren Wheatley tells BizNews.com's Alec Hogg that it has left the station with R250m available to lend. He is dreaming of Kisby growing into a R5bn fund – and expects hesitancy from financial institutions will disappear now that the selection process has started in earnest. – Alec Hogg
Warren Wheatley on the Kisby SME fund and the first funding
We've got two tranches of funding. One impact capital from Mercantile Bank and the second tranche from quite a large retirement fund, giving us R200 million to deploy as a debt instrument. We're ready to rock and roll. In fact, we've opened the platform, specifically to what I call the first responders – the guys who eagerly filled out their registration details.
In the last week, they would have received an email from me asking them to break into their holidays by doing a little bit of administration and compliance so that when we all get back in January, we can hit the road running, get a few loans out and help guys kick off 2022 with a bang.
On how many respondents there were
It's actually been quite exceptional. There have been over 350 applicants that pre-qualify and many others that don't meet our lending criteria. So, [that's] 350 we've started with and R250 million doesn't spread that nicely among so many people. We are looking to do around between 10 and 20 loans in the first six months of 2022. Once we demonstrate the capacity and the system's ability, we [are hoping] to attract more capital into the platform.
On the qualifying criteria requirements needed for the loan
The maximums are generally going to be dealt with through our own portfolio construction. That's really the mechanism at our disposal to protect the portfolio. We've tried to stay away from minimums and maximums as far as we can. The qualifying criteria is [that] you need to be SARS compliant. We want law-abiding citizens. You need to have two years of audited financials. We don't specify which two, but that is indicative of a socially responsible, legislatively compliant business.
We are looking to do loans with the minimum ticket of about R10 million, but that's really just an internal guideline. If you need less or more, we're happy to consider those. We need you to have more than two to three employees. We haven't baked in any real rules into the product. What we are looking for is job creation or job preservation and being able to make a reliable credit decision. If those two items can be met, you're more than likely to get a loan from us.
On how the loan works
The loan is structured over eight years. In the first few years, [where] we assume you would be struggling, we went to help you. [That is] why the interest rate is incredibly low. If you work it out, it's almost below 8% as a nominal rate. As your business improves, partially as a result of improvements in the economy – but also as a result of having access to low-cost finance – we enjoy some of the growth that you experience.
You then need to almost pay it forward and refinance that loan. We start having those discussions halfway through year three. By year four, you need a repayment plan and by the end of that year, you need to have repaid the loan. Alternatively, at that point, we could perhaps have discussions about converting that loan into equity. Our preference, of course, is to have the loan repaid so we can use the capital to pay somebody back.
We then remain as, let's call it, equity partners for a further four years. At this point, the interest seems a little expensive because you've repaid the capital, but what we hope people understand is the benefit of a low-cost loan when you need it the most, this is you paying us back for taking that leap of faith when no one else would talk to you.
We continue to share in the equity over that period. Over the period of the loan, the entire period doesn't have cheap interest. We admit that, but we do structure it so that it's loaded appropriately. It's cheap when you need it to be cheap and more expensive when you can afford to take on a higher cost. At no point is it ever more than, let's call it, 16% per annum. When you do the math over an eight year period, the maximum annual cost over that period would at no point exceed 16%. That's still dramatically cheaper than what is being offered to people in the market where you see rates as high as 40% per annum.
On when businesses will start getting the money
We are hoping that we can start payments by the 1st of March, which sounds like a really long time. Our investment committee will really only return to their desks around the 10th of Jan. At that point, we really want to start interacting with the SMEs. Given that this is our first batch, we want to understand what's in the pipeline so we can help as many people as possible. I know I mentioned between 10 and 20 loans, but if that ends up being 50 loans, then so be it.
We need to understand exactly what's there, what the portfolio is looking like. If we can give 200 people R1 million, we want to do that. We want to take some time to understand who has applied, what they've applied for and how best to help them. That's going to require some analysis and moving outside of the system, which will pre disqualify you if it doesn't meet the criteria. We want to unpack even the no answers to see if there is some way we can help.
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