fin24 recently interviewed lamna CEO, Charles Meyerowitz, about the growing trend of leveraging assets for short term loans. Find out what he had to say about this topic on one of South Africa’s leading financial news portals.
Finance24, Carin Smith
31 Aug 2015
Cash-strapped use valuables for short-term loans
Cape Town – Asset-rich, cash-strapped South Africans are increasingly leveraging the value of their personal assets to gain access to short-term loans, according to Charles Meyerowitz, co-founder and CEO of short term asset-based lender LAMNA.
“We are servicing this fast growing trend, experiencing rare collectors’ coins valued at €20 000, high end boats of close to R1m, esteemed whiskey collections of R100 000 and even William Kentridge paintings being put forward by our clients as collateral for loans, so that they can gain immediate access to liquidity for a variety of economic and personal reasons,” said Meyerowitz.
“Typically, our clients possess valuable assets, which are passively reflected on their balance sheet, and don’t contribute to any active economic benefit. We interact with many entrepreneurs whose businesses are rapidly expanding or highly leveraged, or whose debtors have delayed payments, or they need money to expand and require immediate convenient access to cash.
We are often approached by the building industry where progress payments are irregular and difficult to predict due to factors beyond anyone’s control and we are a source of dependable, convenient access to immediate cash flow.”
After the global financial crisis, traditional financial institutions tightened their lending criteria and South African banks soon followed suit.
“Our banks seem to have lost their bullish appetite to provide small and medium enterprises (SMEs) with access to finance and most don’t really recognise personal assets as leverage for transactions,” says Meyerowitz.
This often leaves the small business owner, who may be in dire need of working capital, in a financial predicament.
In the United Kingdom alone asset-based lenders have provided finance of close to £2bn (R40bn) to individuals and businesses in the last quarter of 2014, according to the Asset Based Finance Association’s statistics.
Meyerowitz foresees a similar growth trend in South Africa, as the new breed of lenders have proven to be reliable, safe, convenient and affordable.
Fin24 asked Meyerowitz more about this industry:
Please describe the market in which you are active (in layman’s terms):
We provide short term cash solutions for persons and businesses who need immediate and convenient access to capital and do not wish or cannot go to their traditional banks. We accept assets as collateral that banks would not normally consider such as jewellery, artwork, and cars provided they are unencumbered.
We should be seen as private bankers to people with assets but short on liquidity and need access to cash.
What creates this “niche”?
The fact is that traditional banks have tightened their lending criteria in terms of paperwork, certainty and credit criteria. They also fail to recognise significant assets as security or collateral.
Banks tend to look at cash flow vs. assets when granting credit. This makes it difficult for people that have assets, looking to raise finance but are cash strapped or at the beginning phase of a project.
In addition, their processes are so automated that they intimidate the entrepreneur who may not be able to put a budget together but might have amassed assets of sort over time.
Lastly, their cumbersome paperwork and length of decision making is so long that opportunities pass before finance is secured. We can have funds paid into a client’s account in less than 24 hours start to finish.
What are trends in SA and globally in this sector you are active in?
Post GFC, this is becoming an acceptable and recognised source of finance world wide – companies such as borro.com claim they have loaned in excess of R2bn. The space is becoming more competitive as new entrants enter the market.
What challenges are there in this sector?
The biggest challenge would be fraud – the nature of the industry lends itself to this type of challenge.
What tips might you offer?
Ensure assets are in good condition, well maintained and proof of ownership is handy. Do one’s calculations carefully and if the opportunity does not lend itself to payback, rather avoid the debt.
Any other comments?
Finance as provided by LAMNA is for those persons who have assets yet need liquidity. It is not a lender of last resort – it is a short term lender of convenience, privacy and integrity.
It should be seen as a transactional cost to doing business and can work well and complement traditional, longer sources of finance.
It often plays the role of funding an opportunity in the earlier risk phase where the entrepreneur knows the opportunity is paramount but needs an injection to start and prove the concept.
It has the benefit of negating a long decision making process with onerous budget and documentation and in actual fact facilitates those unexpected requirements.
It gives the ability to monetise assets that are not normally recognised as a monetisable asset with limited and in fact zero consequences should plans not work out.
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