By Charles Meyerowitz, co-founder Lamna Financial
As South Africa prepares to hear the national budget and buckle down and revive its economic prospects, the need for liquidity has seldom been starker. There is no alternative other than to state the obvious: without cash flow, business deals stop and businesses close down.
Indeed, one need only look at the Covid-19 relief announced by government to understand that businesses generally, and entrepreneurs specifically, need liquidity in order to meet obligations and take advantage of opportunities for growth and wealth creation.
Traditional financing institutions such as banks are inherently risk averse because of their responsibility towards their depositors. They cannot risk their depositors’ money on “unproven” or young businesses, or even worse, “good ideas and a golden opportunity”. It is perhaps an irony of life: someone who is in formal, regular employment can access traditional loans, while often those that are creating employment do not have that option.
This is a problem, because what happens when an entrepreneur spots a gap but needs a cash injection to take advantage, or when a high net worth individual finds themselves with wealth in the form of assets but an empty wallet?
We all know that collecting high value assets can yield impressive returns over the long term. And this is what people strive to do, not least high net worth individuals and businesspeople.
However, if there’s a need for cash, turning those assets into liquidity can take time and effort. To put it plainly, an Aston Martin in the garage or a yacht docked on the west coast has intrinsic value but yields zero liquidity. These assets can be sold, but that takes time and often the seller is forced to sell at less than ideal terms. Beyond this, why should a short-term liquidity gap necessarily mean the permanent offloading of assets?
To compound matters, traditional finance solutions are often slow, cumbersome and come with onerous red tape and, as we know, these options may not even be an option for many individuals or businesses.
Lamna, which has served more than 7500 customers and disbursed in excess of a billion rand, can say with authority that there are thousands of individuals who choose certainty of options, discretion and speed to address their liquidity needs.
Unfortunately, there are some that have given the asset-backed lending industry a bad name. Pawn is widely regarded as a last resort, something that happens in shady environments with suspect individuals.
This is disappointing as it taints an otherwise compelling alternative to the slow, invasive and often burdensome process of applying for traditional credit.
Asset-backed lending, through a credible, NCR approved credit provider, is about unlocking equity in a wide range of assets that may be high in value but low in liquidity. It is paramount that the process is transparent and that the business conducting the transaction is regulated and reputable with a solid track record. Credibility is not bought but earned, and savvy consumers should do due diligence. This due diligence should ask: how long has a business been operating, how much has it disbursed, how many of its customers are return customers and are they registered with the NCR?
Out of an obligation to try to repair some of the industry’s reputational damage, Lamna goes out of its way to communicate and treat customers fairly. This honest approach leads to return business which proves that asset-backed lending is a compelling alternative solution to traditional banks to fill short-term liquidity gaps.
