Float: Liquidity Solutions for African SMBs

Addressing the Financing Gap for African SMBs with Float

Research indicates that a significant 85% of small and medium-sized businesses (SMBs) across Africa lack access to crucial financing. Furthermore, these businesses frequently experience substantial delays in receiving payments, resulting in billions of dollars tied up in outstanding receivables each day. This situation often leads to cash flow difficulties, hindering their ability to cover essential expenses and fulfill new orders.

Jesse Ghansah, alongside his co-founder Barima Effah, established Float to directly address these challenges with their recently launched startup.

A Serial Entrepreneur's New Venture

Ghansah is an experienced entrepreneur, having founded multiple tech startups since leaving university in 2014. He gained international recognition with OMG Digital, a company operating in Ghana and Nigeria, which aimed to become the leading digital media platform in Africa. In 2016, OMG Digital was among the first African companies selected to participate in the Y Combinator accelerator program.

After a successful period with OMG Digital, Ghansah departed two years ago and shifted his focus to fintech for his latest venture. Formerly known as Swipe, Float is a Lagos and San Francisco-based company, 18 months in development, focused on bridging the $300 billion liquidity gap affecting small and medium businesses throughout Africa.

The company’s participation in YC’s Winter 2020 batch marked Ghansah as one of the few founders in Africa to have completed the Y Combinator program twice.

Evolving Beyond "Brex for Africa"

Float has progressed significantly since its initial presentation during Demo Day, where it was described as “Brex for Africa.” According to CEO Ghansah, Float is fundamentally “rethinking how African businesses manage their financial operations, encompassing cash management, payment processing, and access to credit.”

After an 18-month period in stealth mode, Float is now publicly available, and we spoke with the CEO to gain insights into its development and its unique approach compared to existing platforms on the continent.

TC: What core problem is Float designed to solve?

JG: Cash flow is overwhelmingly the primary concern for most small businesses. This issue stems from the entire payment cycle, beginning after a service is provided or a product is delivered. Businesses that serve other businesses typically face payment delays of 30 to 90 days. This is a standard practice where offering credit sales is necessary to remain competitive, resulting in invoices and extended payment terms.

This situation creates persistent cash flow challenges. Businesses awaiting revenue may struggle to meet obligations such as payroll, inventory costs, and utilities. These cash flow issues impede growth, and securing working capital credit from traditional banks is often extremely difficult.

Personal Experience Fuels Innovation

JG: As a co-founder of OMG Digital, we routinely experienced significant delays in receiving payments from our partners. When we needed credit, we sought an overdraft from a bank with whom we had a substantial transaction history exceeding $100,000. However, the bank required a 100% cash collateral deposit before approving the overdraft.

I also recall resorting to high-interest loans, sometimes reaching 20% per month, simply to cover payroll expenses. This experience directly motivated the development of Float and its solutions.

Differentiating Float's Credit Approach

JG: Our credit product differs significantly in its presentation to customers. It’s less complex than a traditional loan and offers greater flexibility than a business overdraft. Furthermore, we provide integrated tools that go beyond simply providing funds.

We offer a software solution with embedded credit.

Currently, we offer a cash management tool that provides credit at critical moments. For example, if a business needs to pay a supplier, they can withdraw credit and make the payment immediately. We provide a credit line accessible upon onboarding, which adjusts based on platform transaction activity.

In addition to credit, we’ve developed tools to help businesses monitor their cash flow, including invoicing, budgeting, spend management, and a centralized view of all bank accounts. This allows businesses to track balances and transactions and manage payments directly from the Float platform.

Float can be considered a comprehensive cash management platform, offering credit when needed and providing complete visibility into a business’s financial health.

Zero Loss Rate: A Remarkable Achievement

TC: Float reports a 0% loss rate. Is this accurate, meaning no businesses have defaulted on the platform?

JG: Yes, we have not experienced any defaults to date. We’ve extended $2.8 million in credit to pilot customers in Nigeria over the past eight months without any losses. This is due to the nature of our credit offerings. We provide businesses with advances based on their future revenue.

This model is similar to Pipe in the U.S., which serves SaaS companies and other segments. We essentially anticipate your future revenue and deduct payments as your customers pay you through our platform.

A New Generation of Lending

You can view us as a Stripe Capital, Square Capital, or Pipe – representing a new wave of multidimensional lending platforms. Lending has evolved through different phases. The initial phase involved online applications and loan decisions. The current phases, 2.0 and 3.0, integrate credit directly into the tools businesses already use. This approach has proven successful because our platform users aren’t necessarily seeking a lifeline but rather aiming to accelerate their growth.

The Inevitable Shift in Loss Rates

TC: Is it realistic to expect this 0% loss rate to continue as Float expands its customer base?

JG: Certainly, it will change. Lending inherently involves risk, and as you onboard more customers, your credit model is tested. A larger customer base increases the probability of defaults. However, maintaining a robust credit risk assessment process is crucial to minimize losses. Achieving a 0% default rate becomes increasingly challenging with rapid growth.

Mitigating Risk and Ensuring Stability

TC: What strategies does Float employ to mitigate losses and manage risk?

JG: Our credit product is continuously connected to your bank, providing real-time insights into vendor relationships, supplier interactions, and customer activity. We monitor the flow of funds in and out of your business. This allows us to dynamically adjust credit limits based on activity changes. If we detect a decline in invoice activity or reduced revenue, we lower your limit. This is a highly responsive and unique approach compared to traditional lending methods.

Beyond Lending: The Value of Integrated Tools

TC: How have the other tools offered by Float benefited businesses?

JG: During our pilot phase, we’ve facilitated both credit access and processed invoicing and vendor payments totaling approximately $5 million for our customers.

While companies like Paystack and Flutterwave focus on consumer-to-business payments, we concentrate on business-to-business transactions. This market is significantly larger, representing a substantial opportunity.

We are launching an updated invoicing product, vendor payment solutions, and a service that allows us to pay for services upfront on behalf of our customers, with repayment terms of 30 days.

Float: A Digital Bank for SMBs?

TC: Is it accurate to describe Float as a digital bank for small businesses? What are the key differences?

JG: Traditional business banking is often outdated and inadequate. Legacy banks provide a subpar user experience. Businesses quickly outgrow basic banking services, and the available options are often limited.

African neobanks aim to compete with traditional banks, but they primarily compete with each other for a small segment of the market because they don’t address the core problems businesses face. A slightly improved user experience and a quick account opening process may appeal to startups or freelancers, but they are insufficient for established businesses struggling with cash flow and timely supplier payments.

The lack of switching costs with Float is a significant advantage. Our platform integrates with existing bank accounts and payment processors, providing credit, a consolidated view of financial activity, and payment tools to streamline operations and enable businesses to focus on growth.