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A great initiative which is designed to ease the entry of BEE operators and entrepreneurs into the transport sector has been embarked on via an alliance between the Industrial Development Corporation and ABSA. This is a good one. Read on...

Under the alliance, the IDC - being a leading development financier - and Absa, the largest retail bank in the South Africa, will collaborate to provide R400-million in a differentiated solution to entrepreneurs for a period of 12 months in this important sector of the economy.

The IDC will guarantee R200-million to allow Absa to provide finance of up to R400-million to Small Medium Enterprises (SMEs). This initiative is aimed at primarily supporting the entry of Black entrepreneurs into the transport sector which, let's face it, has been a pretty much ignored sector in the past.

Barriers such as high interest rates, high deposits, the reluctance by commercial banks to provide finance for applicants with credit bureau listings and difficulty in accessing working capital have traditionally made it difficult for SMEs to enter the transport sector. This initiative is designed to break down those barriers and welcome new players into this industry. It is also designed to further drive the growth initiative by government.

The salient features of the initiative are spelt out in Table 1.

Commenting on the deal, Katinka Schumann-Bester, IDC's executive vice-president for services, says the initiative addresses the demand for finance in this previously ignored segment of the market and the two financial institutions will share the credit risk.

"The Financial Services Charter and the soon to be released Transport Charter incorporating the Road Freight Charter will increase demand for asset-based financing and working capital financing to BEE companies," adds Schumann-Bester.

As a top development financier to BEE and a facilitator to SME development, the IDC will leverage off Absa's existing national retail distribution network, processing capabilities, asset finance knowledge and infrastructure.

Marcel de Klerk, managing executive of Absa Vehicle and Asset Finance says: "This risk sharing initiative will reduce the risks typically faced by the funders of BEE transactions and lower the barriers of entry for these operators. It will enable us to provide finance to Small and Medium BEE entrepreneurs as we have moved away from traditional credit criteria and focused on the 'bankability' of the awarded contract. This means we can provide working capital finance to operators who otherwise would have difficulty in raising finance."

Banks contributed to high risk
FleetWatch has always contended that many banks have in the past shown sweet little knowledge of evaluating the viability of potentially lucrative transport contracts. They evaluate applicants merely based on their assets and liabilities without giving full attention to the transport contract in hand. Because of this, many dud deals have been financed while many potentially 'potent' deals have been turned down. It is our contention that because of this, the banks themselves have contributed to making the transport arena a 'high risk' one.

It was some time ago that Absa embarked on a concerted drive to get to know the transport sector and boxed clever in doing so by entering into alliances with companies involved in the sector. Since doing that, Absa has emerged as a leading contender in the trucking industry and can today offer sensible advice to transporters - both new and old.

It is because of this groundwork that the bank is able, as part of its service offerings via the IDC alliance, examine contracts for viability in order to support the necessary debt - even dealing with the supplier to ensure the contract is legal and enforceable.

As De Klerk says: "In the past we have found that some contracts awarded to BEE contractors were not viable and put the contractor in a compromising situation."

The target market of this initiative is emerging and established BEE enterprises in the transportation sector, entrepreneur road freight transporters as well as owner-drivers that want to purchase their own vehicles for the transportation of goods or the provision of services on bus routes.

The initiative will exclude the current Absa owner driver schemes, all transactions under the taxi recapitalisation programme, transport contracts into the rest of Africa and refinancing.

Along with normal credit qualifying criteria, it is important that applicants should meet the following conditions for the scheme or initiative, meaning that for a contract to qualify as bankable, it must:

• Cover at least 60% of the term over which the assets are financed; 

• Be expected to generate enough income to cover the expenses of the business, service the finance repayments and after a reasonable period after the contract has begun, provide profits to the applicant; 

• Make provision for a minimum amount of work to be guaranteed to the applicant. The revenue from the minimum amount of work must be enough to service the finance repayment; 

• Be a primary contract. Sub-contracts will be considered for finance if the primary contractor is a reputable transport company and not a broker, the sub-contract matches the requirements of the primary contract and Absa has access to the primary contract. 

• No applications for finance to transport brokers will be considered. 

A dedicated call centre has been set up especially for this new service and all enquiries can be directed to 0861 IDC Absa or 0861 227 2432. There you are: They've even given you the choice of spelling it out or keying in the numbers.

If you've detected a little bit of FleetWatch enthusiasm in this story, you've got it right. FleetWatch wholeheartedly welcomes this initiative and compliments both the IDC and Absa on their 'gumph' in getting it together. It's the way to go! Well done!