Access to funding is one of the top challenges reported by SMEs, according to The SA’s SMME COVID-19 Impact Report by FinFind.

A total of 58,6% SMMEs that survived the lockdown reported that they cannot get access to funding.

Of the total funding requests made during the first 5 months of lockdown, 47.9% of the funding requests were made to the government, 27.4% to banks and 13.6% to family and friends, and the balance made to formal lenders.

Some of the reasons that small business owners apply for funding include to increase their inventory, recruiting and hiring new employees, to improve the business’s cash flow, and to upgrade business equipment.

SME South Africa in an article outlines that the South African government offers a number of funding instruments for small businesses. Ranging from grants to incentives, each offer some form of financial support for entrepreneurs.

Besides the common avenues of business funding options like government funding and traditional institutions like banks, there are also alternative funders who provide small businesses with a variety of financing products, usually over a short period.

We have seen the rise of alternative solutions to business financing – fintech companies are offering business funding to small businesses over a short period. They are also giving small businesses flexible payment terms to go with the business loan in South Africa.

Small business owners can apply online to qualify for a business loan in South Africa.

The minimum criteria for the business loan can include that your business has been trading for 12 months.

A lack of financing readiness is one of the biggest reasons business loans applications get rejected. 

Some of the challenges identified in the report, An Assessment of South Africa’s SME Landscape: Challenges, Opportunities,Risks & Next Steps’ 2018/2019 (SME Report) are insufficient operating history, inadequate cash flow, limited collateral and a bad credit score. 

For the most part, needing inventory financing is a good thing. It means your business is doing well enough that it has to prepare for the increase in demand or have sufficient stock. It can also be useful to maximise your inventory in order to drive customer traffic through your doors or e-commerce site. Retailers also use inventory loans to prepare for busy periods and to grow their sales or to take advantage of a discount deal on stock that requires more cash flow than they currently have available. Typically, revenue generated from the inventory is used to pay off the loan.

Inventory loans are often unsecured and do not require any collateral, because of this lenders will focus mainly on recent business performance to assess how risky your business is. In some cases lenders may request that the inventory you purchase be used as security for the loan.

Lenders are more likely to approve inventory financing for product lines that have high-potential. As the business owner applying for the loan, you may have to work extra hard to prove that your products will sell.

Purchase ordering funding is also known as working capital finance. It is when a lender agrees to buy the raw materials or to source the goods on behalf of you so that you can complete your purchase order. The lender takes back their share of the profit when the customer pays you for the purchase order. Purchase order finance bridges the gap between order and payment and has the advantage of being faster and easier to obtain than a traditional bank loan.

The lender sees you as a business partner and requires you to pay a profit share of the purchase order deal. The lender (or funder) is the one who takes the responsibility of paying the suppliers and makes sure that the goods and services are delivered to the customer on time.

Lenders of purchase order funding do not require credit checks. Luyanda Jafta from The People’s Fund explains: “We [the lenders] don’t need to do a general affordability assessment which includes credit checks, financials and statements of assets and liabilities. We only need to assess if your current order has a large enough margin for us to finance it.”

However, as part of the application criteria, many lenders may require that businesses have a track record of supplying goods and services.

There are no upper limits on the amount of money you can borrow through bridging. The cap on your borrowing will be set by your situation and the lender involved. In some cases, very experienced developers are able to borrow 100% of their development costs as a bridging loan.

In many instances, no credit checks are done, however, your business’s financial history and business’s needs will be considered when pricing for the repayment term is structured. Some lenders may ask for collateral (assets) especially if you do have poor credit.

The repayment terms for bridging finance are mostly between six months to 12 months. Some do offer early settlement discounts.

To apply, you can go online and complete an application within minutes. It can take a day, up to three days to hear whether you are approved for the loan, and you can get the financing immediately.

Bridging Finance can be used for easing the pressure on your working capital. Some examples for using bridging finance are to conduct repairs of maintenance work; improving your cash flow; to replace broken equipment; and buy discounted materials and inventory.

It’s typical for businesses, both large and small, to use borrowed capital to meet their day-to-day needs.

Working capital finance, also known as a short-term loan, helps businesses to increase working capital in a business. This type of finance is ideal for business owners who find themselves in a financial crunch and need an extra boost to cash flow.

Working capital money can be used to finance a company’s everyday operations such as stock, payroll or taxes such as VAT. It is however, not to be used to finance long-term assets such as equipment, or investments such as property. It ranges from short term loans and bank overdraft to invoice factoring and debtor finance.

Funding amounts for this type of financing can range from R50,000 to R5 million with a relatively quick vetting and approval process.