Many small and medium enterprises face the access to funding challenge.
Only 6% of respondents reported that they had received funding from the government, according to a study by SME South Africa, ‘An Assessment of South Africa’s SME Landscape: Challenges, Opportunities, Risks & Next Steps’ 2018/2019. Many entrepreneurs struggle to secure funding from two of the most common funding sources – the government and traditional banks, this is where alternative lenders can help fill the gap.
There are three types of business funding options that are commonly available to South African entrepreneurs:
- Government Funding – financial support for entrepreneurs made accessible by government institutions including the Department of Trade and Industry (DTI), National Youth Development Agency (NYDA) and Grants.
- Financial Institutions – traditional business loans and financing from the major banks in South Africa.
- Alternative Funding – funders who provide small businesses with a variety of financing products, usually over a short period.
There are different type of funding available, including:
- Unsecured loans
- Secured loans
- Merchant cash advance
- Asset or equipment finance
- Purchase order/Tender finance
- Revolving credit
- Trade/stock finance
Full guide available here: A Guide To Securing Business Loans and Financing:
When looking for a business loan consider the following:
- The total amount you will be required to pay back.
- The application process, including speed and convenience, as well as how quickly you will receive the funds.
- Repayment methods and the interest rate charged.
- The funder’s reputation.
To help you find the perfect alternative funding option for your small business, we compare three popular options – Lulalend, Merchant Capital and Redtree Capital.
Lulalend– Leading Provider of Alternative Funding for SMEs
Trevor Gosling and Neil Welman launched in 2014 the small business financial lender, Lulalend. Their mission is to help SMEs to grow.
Type of funding
Lulalend has six funding options available:
- Bridging Finance: used to cover immediate costs while awaiting a cash injection.
- Credit Facility: funding you can access at anytime without having to reapply for a business line each time.
- Equipment Financing: to aid you in the process of buying or replacing existing equipment.
- Inventory Finance: to help retail businesses ensure that they have enough inventory on hand.
- Offer trade credit: customers are offered up to three months to pay invoices, while you get paid immediately.
- Refinancing: help with reorganising your financial obligations to simpler, less complicated terms.
To qualify, Lulalend requires that businesses have a minimum turnover of R500 000 per annum and you must have been actively trading for at least a year.
- Their repayment period is between 6 to 12 months, you have the option of one or the other.
- Lulalend’s funding amounts range from R20 000 to R2 million.
- The application is fast and online.
- Funds are released within 24 hours of application if approved.
Entrepreneurs Dov Girnun and Daniel Moritz established Merchant Capital in 2012. They have solidified themselves as the go-to provider of working loans. Their core focus is on retail SMEs and ecommerce businesses.
Types of funding
- Cash advance: Merchant Capital provides upfront cash advances to boost your working capital based on your monthly credit card sales.
To qualify for their cash advance you must either be a Retail and eCommerce owner, with an average of over R80 000 in credit and debit card sales and have been in operation for more than 12 months.
- They do not prescribe what the alternative funds should be used for.
- They offer two repayment methods for you to use without having to pay a huge lumpsum at the end of the month.
- There is a pay-as-you trade system for repayments.
- Quick and easy online application.
- Funding is received within 48 hours and there are no hidden costs.
- Flexible repayment terms.
Redtree Capital is an alternative financial service provider for SMEs. It was founded in 2011 by Philip Vermeulen. They have since been able to advance over R250 million in long term loans to over 2,000 SMEs.
Type of funding
- Asset Finance: Flexible asset financing solutions to acquire the equipment you need.
- Supplier Finance: for business owners who can’t get finance through traditional financial institutions. It allows you to buy the necessary materials for the business on credit to pay later.
- Asset Refinance: Redtree Capital funding to purchase a businesses asset and provide working capital.
In order for you to qualify, your business should be registered, tax and regulatory compliant, a minimum turnover of R2 million per annum, and you must have been trading for at least 24 months and in good standing with the bureaus.
- Redtree Capital applies a credit assessment criteria that is more suited to SMEs.
- Their financing loans come in amounts that range from R50 000 to R500 000.
- You get a decision within 48 hours after they have received all necessary documents.
- If your business needs immediate access to working capital and you have assets on your balance sheet to offer as security, then you may be able to refinance those assets.