Business models are continuously changing; using business funding organizations to fund those changes has become a much easier and sought-after option. Many small businesses require financial injections on a regular basis to pay short-term obligations. Finding a suitable finance model for a small business is critical. If you borrow money from the wrong sources, you risk losing a portion of your business or being trapped into repayment terms that will stifle your growth for years to come.
Funding is required for a company to get off the ground. It will help your company grow and move on the correct path. Getting a new business off the ground is complex, and keeping it moving in the correct direction may prove even more difficult without sufficient funding. Previously, the sole option for a small business loan was a traditional bank. However, there are more options to examine with the rise of alternative lending.
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What is business funding?
Business funding is probably something you know more about than you realise. We all have or have had some form of a loan. Whether it is car finance, a home loan or a personal loan, these are all types of funding. Funding for businesses works in the same way. A bank or alternative lenders provide business funding; although private investors may offer you funding, this option may sometimes not be available.
When you decide your business needs a loan, you go to the bank and fill out an application. Banks use many facts to determine if you will be approved or not. They look at the number of years you have been trading, your credit history, business turnover and many other factors.
Alternative business funding organizations are fast becoming popular for small business funding. Most have streamlined the funding process, making it as simple as an online application and approval.
List of Small Business Funding Organizations
Vodalend
We all know Vodacom, the most popular mobile network in South Africa. Well, they have a financial services division that provides business funding, known as Vodalend. Eligible businesses can apply for a loan and receive funds within 24 hours.
Businesses must have been registered and operational for at least 12 consecutive months, have a good credit rating, and generate revenues of at least R500,000 per year. Vodacom also offers additional services free of charge to businesses that secure loans through VodaLend, such as Vodacom Legal Assist and vouchers for digital and mobile advertising.
Pros
- Quick application online
- Fast turnaround time of 24 hours
- Additional free services if approved
Cons
- Annual turnover requirement of R500 000
Lulalend
Founded in 2014 as South Africa’s First Online Automated Provider of Short-Term Funding for SMEs, Lulalend has grown into the easiest option to get funding quickly. Lulalend identified the gap between traditional lending and small businesses and now offers a quick and straightforward solution that does not require a detailed credit history.
Lulalend is a lending platform for small businesses that leverages technology to improve small business funding. It uses data from different sources such as electronic bank accounts, online accounting companies, payment gateways, and e-commerce marketplaces. The data is then used to assess applications and give funds in a timely, convenient, and transparent manner using a scoring algorithm.
Using this technology to their advantage, Lulalend is able to give applicants a decision within minutes, and funding is available within 24hrs. This is all done online without having to visit a bank.
Pros
- Online applications
- Most applications are automatically processed
- Funding available within 24hrs
- No detailed credit history needed
- No early settlement penalty fee charged
Cons
- Higher interest rate
- Annual turnover requirement of R500 000
FundingHub
FundingHub is a free South African service that saves SMMEs time and money by connecting them with over 30 banks and alternative lenders in South Africa. All it takes is one application which takes 5 minutes. This application then generates a list of loans on offer to you.
FundingHub will assist your business if you are a registered business, have a monthly turnover of over R40 000 and prove you have earned revenue for over 6 months. All lenders on the FundingHubs platform are explicitly trusted and selected for their best interest in SMMEs.
Pros
- Application takes 5 minutes
- Access to over 30 lenders with one application
- Saves time
- Funds available within hours for simple applications
- Comparing offers is made is easy
- Lenders contact you as soon as you accept the online offer
- Various loan offerings
Cons
- Do not offer startup business funding
Bizcash
Bizcash is an online lending service that caters for businesses with a turnover of R1 million and over.
They offer two types of products that help fund businesses, Bizcash Term Loans and Business Loans. Bizcash Term Loans are loans used to improve a business’s disposable working capital. These loans are paid back monthly and have either a floating or fixed interest rate. If you are in the market for a much larger amount, a Business Loan is the best option. With these loans, you can borrow anything from R50 000 to R3 000 000.
Pros
- Application is done online
- Payout within 24hrs of approval
- Quick turnaround time
- The Business Loan is a revolving credit facility, meaning that whatever you pay becomes available again
Cons
- Turnover requirements R1 million +
- The business has to be operating for 2 years or more
Cashflow Capital
Cashflow Capital provides a wide range of business loans and financial solutions to satisfy the demands of enterprises. This institution aims to offer practical alternative financing for small to medium businesses.
As part of their diverse offering, they offer Working Capital funding, Reboot Loans, Asset Finance and Trade Finance. Working Capital funding, also referred to as a Merchant Cash Advance, is ideal for businesses looking to take advantage of an opportunity that has suddenly come up. It is a short term solution that can be paid in 4 to 12 months with daily or weekly payments. The Reboot Loan helps businesses maximise disposable capital. This option allows a business to have capital at hand while having easy to pay instalments.
Asset Finance is a perfect solution for obtaining those urgently needed movable assets. Repayment terms of up to 36 months allow businesses to get what they need without disrupting their cash flow. Trade Finance allows businesses to replenish stock while still waiting for payments from customers. This eases the burden on cash flow, providing the business with the opportunity to use cash flow in other areas.
Pros
- Quick approval process
- 5 min online application
- Varied loan offering
- Products specifically designed for SMMEs
- Flexible terms
- Funds available within 24 hours
- Business only needs to be in trading for 6 months
- Unsecured loan
Cons
- Does not provide funding to startups
- Does not provide loans to non-profit organisations, construction companies or logistics
Business Fuel
Business Fuel is an organisation that belongs to the Genfin group. With simple online loan applications, they have provided SMMEs with funding since 2010. They offer small businesses funding of up to 3 million to those who qualify.
If you are looking for funding from Business Fuel, you would need to meet their requirements: a trading history of at least 1 year and a turnover of R1 000 000. Business Fuel offers an online calculator on their website. This calculator allows you to calculate how much you would pay back monthly based on the amount you require.
Pros
- No business plan required
- Each application has a dedicated consultant to handle any queries
- Funds are made available in 3 days once approved
- Fast online application
Cons
- 1 year of trading required
- Do not fund startups
- Business needs to have a turnover of R1 million
Retail Capital
Retail capital was founded on the belief that the future of our country and economy lies at the hands of SMMEs. They fund small businesses to create employment opportunities which then grows our economy. An online application makes retail capital’s business funding process easy. They have a three-step, easy-to-follow process. If the online option does not suit you, you have the option of calling a consultant and applying over the phone.
Business funding from this organisation is unsecured, and they offer flexible, easy to pay terms. To be eligible for business funding, your business must have a monthly turnover of more than R50,000, a minimum of six months of business ownership, and a trade history of at least three months.
Pros
- Only a turnover exceeding R50 000 is needed
- Loan is unsecured
- They offer startup business funding to businesses operating for 6 months or more
- The online application takes 2 minutes
Cons
- 1 year of trading required
- Business needs to have a turnover of R1 million
CorpFin
CorpFin offers short-term business funding products to businesses in need of a ‘cash injection’. These loans are paid back over a three to nine-month period. If your business’s financial needs are much larger, CorpFin will facilitate the procurement of a loan through a traditional bank.
Part of their product offering is Short-term business finance, Development finance, Immovable property finance, Business expansion funding, Product or stock finance, Buyout funding, Business refinancing, and Property auction finance.
Pros
- Help with obtaining a long term loan through traditional banks if needed
- Offer loans for partner buyouts
Cons
- Annual turnover requirement of R1 000 000
Bridgement
Bridgement offers businesses a transparent opportunity to obtain financing quickly. Their application is 100% online and does not require any paperwork. They will make funds available within 24 hours of approval.
Bridgement is unquestionably one of the alternative lenders doing things that banks aren’t doing. Bridgement lending facilities allow businesses in a variety of industries to get a near-instant business loan between R20 000 and R5 million.
Bridgement can instantly and securely validate your trading history by linking to your accounting package. This method eliminates the need for any paperwork. This also means Bridgement can approve your application more quickly and efficiently.
Pros
- Validates trading history by linking to your accounting package
- No paperwork required
- No penalties for early settlement
- Online funding calculator available
Cons
- Turnover of more than R500 000 is required
Guide on Business Loans
Why are alternative business funding organizations a good option?
Alternative business funding organizations are used by SMEs and
startups to obtain capital that they aren’t able to get from traditional
banks. They differ from banks in these ways:
- Sometimes small business owners do not meet the additional
standards for applying for and receiving traditional loans. Most
alternative business funding organizations make applying and
approval much more accessible.
- With this funding option having a credit history is not a
requirement. Other aspects of your business are considered to get
you the funding you need. - Traditional banks take many weeks before they approve funding,
while some of these funding organisations will approve you
immediately or within 24 hours.
Why do small businesses struggle with obtaining loans from banks?
Small businesses and startups find it challenging to obtain capital for a variety of reasons. Banks are not opposed to lending to small businesses; on the contrary, they want to contribute to business growth of any kind. Nevertheless, traditional banking institutions use an outdated model that is a cumbersome lending process and apply rules that do not relate to startups and small businesses.
Access to capital is more difficult since many small businesses requesting loans are new and have little to no credit history. Banks typically prefer to see at least a five-year profile of a healthy business before making an offer. Banks necessarily focus on applicants with a reasonable amount of money invested in the business but can still service their debt.
Reasons businesses use business funding
A business must have funding to get the ball rolling. It will enable your business to flourish and move forward. It is not simple to get a new business going, and it can be even more challenging to keep it moving in the correct direction. These are some of the reasons businesses seek out business funding.
- At the start of a business
SMMEs and startups in their early stages will require capital to get started. These businesses’ cash flow is vital for their survival at this stage. Although the majority of directors will use their own funds as capital in the business, relatively few will be able to completely self-fund the business. They will thus need to seek external funding options.
Loans to start a business can be used to purchase stock, obtain employees, and advertise the business. The initial capital can be challenging to obtain, and many banks will want extensive documentation and will impose stringent requirements.
- Purchasing of assets
The growth of your business and increasing sales frequently entails the purchase of assets such as new vehicles or equipment. Even though you may have enough cash to pay your business’s working capital needs, you may need to consider a loan to fund the acquisition of new assets to allow your business to grow. An asset loan is the best option to spread the costs of purchasing a new asset.
Asset loans can be used to purchase a variety of items for your business, depending on what you require to carry out your growth ambitions. You can use the funds to purchase your business’s first vehicle or add to your current fleet. The funds can also be used to purchase office equipment to ensure that your employees have all they need to keep your business running efficiently. New machinery can be purchased with the funds to allow you to create new items or ramp up production while spreading the cost rather than paying a significant sum immediately.
- Improving working capital
Adequate working capital is a critical element of every business’s financial health, and a lack of working capital can have major consequences for your business’s future. Frequently businesses choose to seek external finance to generate enough working capital to support their growth plans. A business loan can satisfy short-term funding needs while providing the business with the money it needs to grow. It can also keep the business going between client orders and supplier payments.
Business loans can be a good ‘buffer’ for your business if you need some additional money. You will rest assured that the loan covers your daily operating costs, so you’ll have the funds ready to meet any unforeseen needs. Working capital funding might also enable your business to capitalise on new opportunities by investing in new products or services that will allow you to grow. Businesses with a seasonal income may benefit from working capital finance to pay basic needs during slower periods.
- Funding business growth
If you want to grow your business and take things to a whole new level, you may require a cash injection to enable you to carry out your goals. A loan to fund your growth can help you extend your product or services, improve sales, hire more employees, relocate to a new location, or expand to other regions. Irrespective of how you intend to expand your firm, growth finance tailored to your needs can assist you in capitalising on new prospects and making your dreams a reality.
If your company’s everyday operating expenditures are covered, alternative business funding may be the solution you need to expand. Many of these loans will have fixed monthly repayments for the life of the loan, allowing you to better plan your business finances as it grows.
Advantages and disadvantages of business loans
Like with anything in life, business loans come with advantages and disadvantages. It is important to weigh up these disadvantages and advantages before making a decision for your business needs. Below is a list that can help make your funding choice a little easier.
Advantages
- Most organisations have an online application process that is streamlined and can be completed in minutes.
- When you have repaid the loan, your connection with the lender is over. This is highly critical as your company grows in value as you do not want to have too many people involved in profit share.
- The lender has no say in how you manage your business and does not own any part of your business.
- Approvals have a faster turnaround time. Some offer instant approvals or approvals within 24 hours.
- Fixed monthly payments give you room to plan and utilise working capital efficiently.
Disadvantages
- Business loan organisations sometimes have higher rates and fees since risk assessment and approval standards are less stringent than traditional lenders.
- Most have a shorter timeframe for repayment of loans than traditional banks
FAQ
How is an unsecured loan beneficial?
Because no security or collateral is required, your assets are not used to fund your business. This also implies that the application process will be short and simple. Unsecured finance assures you that a tough month will not result in the loss of any assets, giving you the opportunity to concentrate on managing your business.
Why should I get a business loan?
Your expectations from the organisation determine this. When you obtain a business loan, the lender does not gain equity in your company, unlike selling a few shares. If you are successful, you will simply have to repay the capital plus interest rather than a portion of the revenues for the duration of the business’s existence.
Why are interest rates higher with alternative lenders?
Alternative lenders bear the vast majority of the risk by offering loans to businesses that traditional banks will not fund. They are more receptive to businesses with terrible or no credit. They often have options for individuals with poor credit, making it easier for enterprises with little to no history to receive funds. They usually charge a higher interest rate because they absorb the risk of your business having a bad month or not being able to pay back the total amount.
Conclusion
Maintaining the health of your business’s finances is imperative. Managing your income and expenses carefully in the early phases of your business assures that you can repay the loan. After you have fully paid off the business loan, the same cautious cash management will keep your business afloat.
With a good payment history, you may be able to secure additional business loans in the future. Lenders are not interested in throwing money at a sinking ship so ensure that loans are used cautiously to grow your business.
Happy to know about Top funding organization, but can we have details of Top ERP Development Companies of Africa?
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