What options are there for funding a small business in South Africa?

Whether starting a new business or growing an existing venture when it comes to business finance its crucial that you understand the options available to you for funding your business.

Equity based finance is of course not the only option when it comes to raising money for your business. Once you have compiled your business plan, these may be a few other options you can to consider:

Option 1

Venture Capital

One problem many new businesses face is raising sufficient capital. A business in it’s primary phase will also face a difficult challenge getting a bank loan. One alternative is venture capital. Venture capital firms offer capital in exchange for equity in a company. This type of financing is ideal for new businesses since venture capital firms focus mainly on the future prospects of a company when banks use past performance as a primary criteria.

Option 2

Asset Based Financing

Asset based lending has become increasingly popular as a means of financing growth and providing working capital. Asset based financing is a general term whereby a lender accepts as collateral the assets of a company in exchange for a loan. Most asset based loans are financed against accounts receivable and less often, against inventory since receivables are among the most liquid of a company’s assets followed by inventory. Receivables are favoured by lenders since they self-liquidate in a short period of time by themselves and are not susceptible to problems such as shrinkage or physical damage. Another type of asset based lending rapidly gaining popularity is factoring. Factoring is defined as the purchasing of a company’s accounts receivable on a non-recourse basis. Asset based lending may be the best source of working capital for companies in turnaround where traditional bank loans may not be available or for new and rapidly growing companies where high levels of growth cause the business cycle to outpace the collection of receivables.

Option 3

Long Term Debt

Long term debt is one of the initial financing avenues a company should pursue. Most long term debt takes on the form of a loan where the interest and part of the principal are paid back in equal instalments over the life of the loan. Some of the sources for business loans include the following: commercial banks, government sponsored loan programs, small business investment companies, private lenders.

Option 4

Lines of Credit

A line of credit loan is designed to provide short term funds to a company in order to maintain a positive cash flow. Then, as funds are generated later in the business cycle, the loan is repaid. Most commercial banks offer a revolving line of credit, where a fixed amount is available. As funds are used, the “credit line” is reduced and when payments are made, the line is replenished. One advantage of a line of credit is that the no interest is accrued until the funds are withdrawn, but the line is immediately available for the company’s cash flow needs.

Option 5

Letters of Credit

A letter of credit is a guarantee from a bank that a specific obligation will be honoured by the bank if the borrower fails to pay. Letters of credit can be useful when dealing with new vendors who may not be assured of a company’s credit worthiness. The bank would then offer a letter of credit as an assurance to the vendor of payment. Although no funds are paid by the bank, the credit requirements for a line of credit and a letter of credit are similar.

Option 6

Loan Workouts

A loan workout is the process of repaying a problem loan in a fashion that is most agreeable to the lender and the company. Among the Options involved in a successful workout are maintaining communication with the lender, creating a revised payment schedule, and forming a workout team composed of the company’s management, representatives from the lending institution, and legal counsel to manage the process. One of the initial Options in workout proceedings is to recognize that repayment of the loan will not occur. The earlier the company recognizes that a problem exists, the greater their flexibility in dealing with the problem. Financial consultants who specialize in loan workouts are also available to coordinate the efforts of the company and the lender. These consultants can direct the workout team’s efforts and suggest solutions to the problem. Floor Planning Although relatively new as a financial instrument, floor planning is another asset based lending approach in which companies can finance their inventories. In floor planning, inventory is financed based on the credit of the vendor as well as the company receiving the financing. The inventory purchased acts as collateral until the sale is made.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

style="color: #000080;">www.mortgagepluscc.co.za

Bond Originators South Africa – 0861 11 11 93

Before there were any bond originators, you had to go through the process of applying for a home loan / mortgage with every single bank individually. You had to go to their office during regular hours. This took extra days and hours of trying to shop for home loans with the best interest rates you could live with. When you hire a bond originator in South Africa, things work very differently. Bond Originators like Mortgage Plus will often come to your home, even after normal business hours. They take you through the application just once. No matter how many other lenders they will approach on your behalf. This means that you do not have to spend hours going t hrough the same home loan process repeatedly.

Mortgage Plus have signed contracts with all of the bigger banks as well as many of the smaller independent banks and a list of kinds of lenders that they have worked with in the past. The thing that is good about this is that when you get the okay from multiple places, you can choose which one you want because by being able to compare home loan interest rates and terms you can pick the one that offers you the very best terms.

Mortgage Plus bond originators do all of the negotiating with all of the lenders, banks and financial institutions in order to get you the best home loan interest rates possible in South Africa. When all is said and done, Mortgage Plus Bond Originators can usually get between a 0.5% and 2 % lower than the current prime interest rates. Estimates in South Africa say that the origination industry will save their clients around 5% per year in rate concessions. The lenders, banks and financial institutions all know that they have to be very competitive if they are to get any business. There will be times when the negotiations have been completed, a lender, banks and financial institutions will tell the originator like Mortgage Plus that they will give them an extra percentage discount beyond what the best lender has negotiated. The originator will not reveal what has been negotiated but will give each of the lender, banks and financial institution one final time to bear the best rates or terms that the originator has in hand.

It is also a good thing that regardless of all the red tape the NCA causes, bond originators somehow manage to take your application through the process of getting approved in just about half the time it would normally take you if you were approaching the lender or bank directly. Mortgage Plus takes 4 working days to get you a bond approval. Therefore, you not only save on rates and get better terms, but you also save time and we all need to save as much time as we can.

It is no secret that banks ar en’t very enthusiastic about the bond originator industry. They have to give up some of their margin and what they would have earned on insurance as well, when bond originators secure the bond on behalf of their clients.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za