4 Alternative Business Funding Solutions for Small Businesses In South Africa

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For any small to medium business looking to grow, access to capital is a key component. Ideally, all businesses could easily obtain a bank loan to help them expand. Unfortunately, this isn’t the case with smaller businesses.

In this post, we will look at why bank funding does not always serve SMEs and why they should consider non-bank funding. Then we talk through the different types of alternative funding available.

Why SMEs Struggle to Get Bank Loans

Many small to medium-sized businesses are unable to access loans from banks because of stringent requirements regarding trading history and inadequate credit scores. Often the loan amount needed is just not worth it for banks.

SME Funding

SMEs are a lifeblood of an economy, yet in South Africa, only 25% of bank’s business loans are given to SMEs. South Africa has 2.5 billion SMEs, which account for 98.5% of all businesses in the country This leaves a huge number of SMEs to fall through the funding cracks. That’s why we recommend SMEs look into alternative funding solutions. 

Why Alternative Funding Solutions Are Better For Small Businesses

Geddes is run by entrepreneurs who understand the challenges faced by small to medium business owners and recognise that a funder’s speed and flexibility are vital cogs in assisting businesses to succeed. 

  • Quicker turnaround times and lending process 
  • Personalised service, and have less rigid policies than banks do, which makes them effective funding partners for SMEs 
  • Lower Credit Score Requirements 
  • Greater flexibility 

The biggest benefit of alternative finance is that it unlocks new possibilities for your business. At Geddes, getting creative to solve unique problems is in our DNA. We recently helped our farming client unlock fields of funding after a sheep crisis. Read the case study here. 

4 Alternative Funding Options Tailored for SMEs 

1. Non-Bank Secured Loans: A tailored option for your business

Secured loans are not only offered by banks. A secured loan is where an asset (such as a property) is offered as security for a loan. It is possible to use a paid-off property as security for a loan from an alternative funder such as Geddes – we sometimes forget that not only banks can register a mortgage bond over a property. 

There are various benefits to getting a secured loan from an alternative financier. These include: 

  • Streamlined application procedures
  • faster disbursement timelines
  • Designed to cater to the unique needs of businesses
  • Greater flexibility in terms of repayment schedules, interest rates, and eligibility criteria 

For example, non-bank loans can be structured to accommodate businesses with diverse credit profiles, including those with less-than-perfect credit histories.

2. Bridging Finance: Closing the funding gap 

Bridging Finance, or a bridge loan, is a short-term loan that allows your company to “bridge” the gap to longer-term funding solutions. These loans typically have a term of 3 months to three years and are secured by property. 

Three main benefits of bridging finance include: 

  • Speed: Bridging finance is often much quicker to access compared to traditional bank loans. This speed can be crucial in situations where immediate funds are needed, such as property purchases or business transactions.
  • Flexibility: Bridging finance can be tailored to suit specific needs. Whether it's a short-term loan to cover a gap between transactions or a larger loan to facilitate a property development project, bridging finance can be structured accordingly.
  • Short-term solution: This short-term nature can be advantageous for borrowers who need funds quickly but anticipate being able to repay the loan relatively soon.

Industries such as property development and mining make regular use of bridging finance. 

3. Invoice Factoring: Unlock cashflow using your debtor's book

In a B2B context, customers are often facing the same cashflow constraints as your business. To maximise income many businesses offer customers extended payment terms. This means that your business has to take the cashflow knock by only receiving payment for goods and services at a later date. Invoice factoring offers a practical solution to this problem.

With invoice factoring, the alternative financier will purchase your invoices at a discounted rate and, upon receiving payment, will pay over the balance to your business, less their fees. 

This helps businesses bridge the gap between invoicing and receiving payment, which assists in continuous and more predictable access to cash flow.

4. Revolving Credit Facilities: For flexible funding 

Like overdrafts and credit cards, revolving credit is a funding option that enables businesses to withdraw credit when required to pay for business activities. The credit line remains available even as you pay the balance. 

Various types of businesses can benefit from revolving credit facilities, especially those with fluctuating cash flows, seasonal revenue patterns, or ongoing working capital needs. Here are some examples of businesses that can benefit from revolving credit facilities:

  • Retail businesses
  • Manufacturing companies
  • Service-based businesses
  • Construction firms
  • Wholesale distributors

How to Get Funding for Your SME

This article has looked at four alternative funding solutions for small businesses. If you are looking to fund the future of your small businesses, we suggest you get in touch with our team so we can guide you towards the best alternative financing option for your business. 

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