Business Finance Options In South Africa

What are my business finance options in South Africa?

Many smaller companies reach a point where they need additional funding to grow, or meet operational expenses while they wait for customers to pay. These organisations may believe that traditional bank loans and overdraft facilities are the only business finance options that are available to them in South Africa. However, this is not the case at all.

Here’s an overview of (just a few of) the diverse funding mechanisms that are available to small and medium enterprises (SMEs) and other growing companies in South Africa:

Bank loans

A recent OECD survey focused on South Africa’s economy found that “bank lending to small and medium-size enterprises appears low, accounting for 26% of business lending”1. This falls behind the percentage of bank loans offered to SMEs in many other nations, including Turkey (36%), Brazil (39.6%), Malaysia (46%) and China (64%), for example.

When companies do apply for bank loans in South Africa, there is typically a long delay. According to South Africa’s Small Enterprise Development Agency (SEDA), it can take up to eight weeks to process an application; and if the business is fortunate enough to be granted a loan, it can take up to three months before the loan is paid over into the company’s account.2

Obviously, if the SME needs the working capital immediately to fund an operational cycle or take advantage of a new business opportunity, a bank loan is not the most suitable business finance option.

    Other challenges that go together with this finance route include:
  • Credit record issues:

    To qualify for business finance from a bank, a company needs to have a good credit record. Any bad credit, even dating back years, can disqualify an organisation from getting bank finance.

  • Bank loans do not scale as business grows:

    The amount available to the company is limited by the security offered against the loan. This usually takes the form of a fixed asset, such a property, which has a set value. As a result, this business finance option does not scale to match a company’s revenue growth.

Small business loans

Some organisations specialise in providing finance to smaller businesses that would not typically qualify for a bank loan or overdraft facility (perhaps due to a bad credit record or the type of collateral that the business has available). However, these loans are often offered at a premium; and are more expensive than bank loans and other business finance options in South Africa.

Angel investors and venture capital funds

Both these business finance options are typically available to start-up businesses rather than established SMEs.

Angel investors – either wealthy individuals or investors who operate as an ‘angel network’ – provide start-up capital in exchange for equity in the business or a fixed percentage interest rate. The challenge here is that some angel investors want to take a hands-on role in business decision-making, which may not suit business owners who do not want to compromise equity or control.

Similarly, venture capital (VC) invest money in return for shares in the business, often for a limited period of around five years, after which they sell the shares back to the company. The VC organisation also gets involved in the business, typically at board level.


Factoring is one of the most well-established business finance options in South Africa and globally, providing SMEs and other growing enterprises with the ability to access working capital in a fast and scalable way that is linked to turnover rather than being based on the value of bricks and mortar or another fixed asset.

    Factoring works as follows:
  • A business enters into a contract with the factoring company, in which it agrees to factor its credit sales
  • The business receives a purchase order from a customer, completes the work and delivers the product or service
  • The company raises an invoice and sends this to the customer, as well as to the factor (including the POD)
  • The factor pays up to 75% of the invoice amount, providing the business with a cash injection to continue operating optimally
  • The factor then handles collection of payments, and once payment has been received, releases the balance to the business, less the administration fee

Unlike the other business finance options discussed, factoring avoids compromising equity or control; it’s not dependent on the business’s credit score, but rather the creditworthiness of its customers; and the lead time from application to pay-out can be as short as a week, giving businesses faster access to the cash they need to fund daily operations and meet growth goals.

Choosing the right factoring company

Not all factoring companies offer the same levels of service. Merchant Factors is the only truly independent debtor finance institution in South Africa – and, as a result, not only does it offer businesses the shortest turnaround time in the industry from application to pay-out but also personalised attention.

Another advantage of choosing Merchant Factors, is its ability to handle debtor administration in an expert and professional way. Merchant Factors will take care of sending monthly statements, phoning debtors for payments due, sending reminders and final demands, handling receipting and reconciliations, and even liaising with attorneys should it be necessary to institute legal action.

For fast, flexible financing – contact Merchant Factors today.

Finance beyond the Numbers.