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

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South African homebuyers make a comeback

Wealthy local and international property buyers are reportedly snapping up homes in Cape Town’s sought-after suburbs of Clifton and Bantry Bay.

According to Dogon Group Properties, despite a slowdown in the property market currently, the group have sold 17 prime properties to the value of over R400 million in Clifton and Bantry Bay on Cape Town’s Atlantic Seaboard.

Nine out of 17 properties were sold to South African buyers some of whom relocated from Gauteng and KwaZulu-Natal to Cape Town.

Foreign buyers included an Indian liquor baron, West African and Asian industrialists, European royalty and Captains of industry from Germany and the United Kingdom.

Two of the 17 properties sold have been sold three times in the past four years.

An apartment in one of the most prestigious blocks on the water’s edge in Clifton sold twice in a two year period, initially for R25 million and later again for R28 million.

Denise Dogon of Dogon Group Properties says both local and foreign buyers of properties in the sought after Nettleton Road and beachfront areas of Clifton still see great value in investing in these locations.

She explains that in good or bad times investing in property is always about the position.

In Clifton, buyers in recent months have paid up to R60 million for a villa while a penthouse was sold for R33 million.

“Buyers are still seeing value in Clifton property and many have been looking to buy in Clifton for years and when the right property comes onto the market, they are quick to respond,” she says.

However, Dogon notes that there are contradictions in the market – on the one hand buyers are looking for bargains in the wake of the global economic slowdown and on the other hand the prices they pay are setting new records for sales in the area.

One example is of a sale in Nettleton Road for R45 million. This is definitely one of the highest prices ever for a piece of land, as the buyer has effectively bought a plot because he intends demolishing the house and building his own, she says.

“In some cases, sellers make profits but and in some, they take less than they paid for the properties in an effort to liquidate assets”.

Dogon says a bungalow on one of the biggest stands on the beach in Clifton, previously marketed for R40 million was recently sold for R26 million and two other bungalows – one for R34 million and the other of R20 million were both sold for the full asking prices.

“South African property still offers excellent value for money and a superior lifestyle when compared to other countries.”

Dogon says Clifton – unlike other suburbs in South Africa was clearly governed by demand and supply principles and that the rare ‘gems’ such as the properties on the ocean and in Nettleton Road achieved top prices irrespective of the state of the rest of the property market.

Top-end properties also seem able to maintain their growth in recessionary times because there is always a shortage of prime properties.

While there are not many buyers in this league, those operating here are very discerning and know what they want.

Sellers are definitely more negotiable as we have been able to work within a band of up to 20 percent discount differential between the listing and selling price, she says.

High income earning property buyers and investors will pay any price as long as the location is right.

According to Seeff Properties, the Atlantic Seaboard and City Bowl locations hold an inherent capital appreciation and even when prices drop, those who buy smart still make money.

Seeff Atlantic Seaboard and City Bowl managing director, Ian Slot says a five-year sales trend analysis reveals that on freehold property sales, Bantry Bay achieved 22 percent and Clifton at 18 percent average annual capital growth over 4.9 yy/mm while Fresnaye achieved 17 percent over 4.8 yy/mm.

Since 2010, 11 homes above R30 million to the total value of R392 414 000 have sold at a capital appreciation of between 10 percent and 18 percent over 4.1 yy/mm and 3.6 yy/mm respectively, he says.

The highest price achieved in 2010 was R60 million for a villa located in Nettleton Road, Clifton, while a villa in Kloof Road, Clifton sold for R45 million this year.

Slot says without a doubt, location still sells. As an example, he says a four bedroom villa in Ave Disandt in Fresnaye was recently sold for R11.5 million within three days of listing it.

Seeff estate agents say location remains a drawcard for Camps Bay buyers.

In Mouille Point, agents report that buyers are prepared to pay between 10 and 15 percent more for sea-front properties such as a one bedroom unit in Fortuna sold in September for R1.75 million.

In Sea Point, the good location buys are without a doubt the beachfront properties where a total of 17 units have sold in Beach Road to the value of R73.06 million, according to Seeff estate agents.

Pam Golding Properties (PGP) recently sold a luxurious family home in Bishopscourt for R35 million.

The property located on Klaassens Road was purchased by a South African buyer drawn to its expansive entertainment areas, privacy and security as well as its generous accommodation.

PGP’s area manager for the Southern Suburbs, Howard Markham, says the sellers demolished an existing older house on the property in the early 2000s, creating the space to build their dream family home.

Markham says the location in the southern quadrant of Bishopscourt, bordering the Constantia Valley, offers some of the suburb’s best views.

The entire suburb of Bishopscourt is known for its large family homes on extensive grounds and it is only fitting that properties in this location regularly fetch well above R20 million.

“This particular sale was a cash deal concluded with a local buyer, confirming our experience that there is still demand from South Africans for top-end executive homes in the best suburbs, regardless of current economic conditions,” he adds. – Denise Mhlanga

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