Disruptive fintech startup, iKhokha, which challenged big financial institutions when it launched a mobile app and card machine for small and micro businesses, is again stirring the waters by offering a merchant cash advance.

iKhokha managing director, Matt Putman, says this is another step towards realising its goal of transforming small businesses through mobile innovation and becoming the go-to brand for SMEs seeking key financial services in South Africa.

It already counts more than 2 500 small and medium formal and informal businesses as customers.

“We have always wanted to help solve the real challenges which face South African entrepreneurs and we know from working closely with them that their number one issue is access to capital. The majority of our merchants do not qualify for formal bank loans as they are seen as too risky by traditional institutions. In fact, our partner data shows up to 80% of SME finance applications are not matched by banks in SA. Yet these businesses are healthy and in need of finance to grow. It has serious repercussions for our economy if they don’t get the support they need.”

Even for the select few SME businesses that could qualify for a bank loan, a standard loan has a number of limitations in that it’s complicated, requires exhaustive documentation, the entrepreneur often needs to provide personal security as well as needing to commit to pay off a set amount each month over a fixed time period irrespective of normal fluctuations in his cash flow.

To test interest in the product, iKhokha offered only 250 of its merchants a cash advance and was surprised by the demand. They disbursed more than R500 000 worth of cash advances within the first week with an average deal size of R19 000 per advance.

Applying for an iKhokha cash advance is simplified to three online mobile clicks. The merchant opens the iKhokha app, reviews his custom cash advance offer, selects how much he requires and selects the targeted repayment period and agrees to the transparent fixed fees. Once accepted, the money is deposited into his account within 24 hours.

iKhokha already knows the merchant’s trading history and therefore no additional paperwork or security is required.

Then it’s business as usual. iKhokha automatically deducts a fixed percentage on each processed card transaction, so the merchant’s repayments are linked to his monthly business performance. The cash advance capital cost is capped upfront, at a percentage of the capital amount taken and does not increase irrespective of how long it takes to pay back. The better the business does, the quicker the amount is paid off. On the flip side, if business is slow, cash flow is not crippled.

All active iKhokha business owners that have been trading for more than three months will be eligible for a cash advance and it is customised based on each merchant’s trading history.

iKhokha started out with a device that allows business owners to process debit and credit cards, cash and mobile payments. This low-cost payment system’s pricing is far below that of mainstream SME-focussed financial services products with transactions charged at only 2.75% (excluding VAT) instead of the standard 3,5%.

It also provides business owners with powerful information on their sales empowering them to track and properly manage their finances.

The iKhokha card machine is available for purchase online or telephonically, at selected Game stores nationally (ready for trading in two hours) or via sales agents in KZN, Johannesburg and Cape Town.

iKhokha’s evolution beyond being just a provider of mobile card machines and payment acceptance for SMEs is gathering momentum as it moves closer to being the provider of a broader range of financial services for grassroots entrepreneurs like spaza shops, tavern owners, tradesmen, salon owners, independent retailers and market vendors.

“These grassroots businesses should stimulate real growth and employment in South Africa, yet the business owners struggle to access the appropriate services for their growth needs. We want to fill that gap and assist them in their journey to full digital and financial inclusion,” he says.

The iKhokha cash advance product is also likely to drive merchants to more readily embrace the acceptance of card payments over cash payments in a broad range of industries so that they qualify for a cash advance.

This has benefits for consumers who are tired of carrying the risk associated with having cash, as their debit and credit cards will now be accepted at more non-traditional outlets.