Business financing companies in SA: the landscape today

Business financing companies in South Africa: the landscape today

South African businesses have been borrowing a lot of money. Research shows that the formal business sector carried a total debt amount of 5.7 trillion during 2016.

So where do companies go when they need working capital? In this article, we round up a range of funding solutions and business financing companies in South Africa.

1. Government grants

Instead of approaching the private sector, certain companies can apply for funds from the state.

The good news? Government grants are completely interest free and there’s no need to pay back the funds.

What about the sticking points? Strict selection criteria put many companies out of the running for this type of finance. The paperwork is very heavy, which means there is quite some time and effort involved before the grant is accessible. And the government controls how the business spends its money.

2. Bank finance

As a small business, applying for a bank loan can feel like an endless struggle. Many of the bigger banks have deep due diligence processes, keeping you waiting for months on end.

You’ll also need collateral. This is an asset you own, such as a house or building, that you agree to hand over to the lender if you can’t meet the loan terms.

And you need a clean credit record – because bad debt, even if it’s ancient history, could rule you out instantly.

3. Peer-to-peer (P2P) lending

Rather than borrowing from business financing companies in South Africa, some firms are accessing funds from their peers. This novel funding approach connects people who need money with people who want to lend money via an online platform. There are no financial institutions involved.

P2P lending is still an emergent concept locally, but a growing sector further afield. Research reveals that the value of UK-based P2P business lending rose by 51% during 2017 .

4. Venture capital (VC)

This type of finance is ideally suited to early-stage businesses that are willing to sacrifice equity and control. Therefore, this may not appeal if you’re already a going concern with growth plans to fund.

VC organisations invest money in return for shares in the business. After a few years, they sell these shares back to the company. The VC organisation also has a hand in running the business, typically at board level.

5. Factoring

This is a flexible, asset-backed financial facility that provides businesses with working capital against their outstanding invoices. When you partner with a factoring company, they purchase your accounts receivable and then take care of your debtors’ ledger for you.

Factoring is a well-established financing mechanism used extensively around the world, because it gives companies access to finance that grows with turnover. With factoring, there’s no need to give up equity or control, and the main point of focus is your customers’ creditworthiness, not your own. For these reasons, many companies choose factoring as an alternative to bank loans and overdrafts. But it can also be viewed as a way to diversify your business funding portfolio.

Choosing the right factoring partner

While many banks offer invoice factoring as a service, an independent factoring company like Merchant Factors can provide clients with finance that is personal, flexible and scalable.

Merchant Factors was founded in 1988 to provide growing companies with an alternative to restrictive bank loans and overdrafts. Decades of experience and independence allow Merchant Factors to tailor financial solutions to suit the needs of each client, as well as offer the shortest turnaround time in the industry from application to pay-out. This means that you get access to the cash you need, when you need it – rather than waiting months and putting your business at risk.

Plus, unlike most banks, Merchant Factors offers expert debtor administration services. Outsourcing debt collections to this firm is part and parcel of the factoring agreement. It’s a service that adds immense value to your business, thanks to the time and effort saved in the back office.

Looking for a smart way to free up cash in your business? For fast, flexible invoice financing – contact Merchant Factors today.

Finance beyond the Numbers.

Reference list:
  1. http://www.statssa.gov.za/?p=10705
  2. https://www.entrepreneurmag.co.za/advice/funding/government-funding-funding/government-grants/
  3. http://bridgingandcommercial.co.uk/article-desc-13136_P2P%20business%20lending%20up%2051%20per%20cent