Accessible, flexible, fast business lending for SMEs

Accessible, flexible, fast business lending for SMEs

Small businesses are core to South Africa’s economic wellbeing, where they play a key role in GDP and employment. According to Fin24, local SMEs account for 90% of formal businesses, create jobs for around 60% of the labour force and contribute 34% of GDP.

However, running and growing a small business is not easy in the current economic and political climate. Uncertainty is the order of the day – and in volatile ecosystems, the big banks and financial services institutions are more risk-averse than ever.

Fortunately, there are more business lending options available beyond conventional bank loans. One of the most well-established working capital solutions is factoring.

What is factoring?

Factoring is one of the most tried-and-tested forms of business lending. This finance method is used around the world by a growing number of businesses. Recent research shows that global factoring volume reached over EUR 2.35 trillion in 2016.

    Factoring typically works as follows:

  • A business makes a sale, delivers the product or service, and generates an invoice
  • The factoring company buys the invoice and pays the business 75% of the invoice value
  • When the customer pays on the business’s agreed terms, the factoring company pays the business the balance of the invoice value, less an agreed fee

With this business lending solution, the company can quickly access the working capital it needs to pay suppliers, meet salaries and rent, and continue with business as usual. It also has the cash flow available to take advantage of new business opportunities that come along – before competitors do.

Factoring is therefore a business lending avenue for SMEs that are experiencing cash flow problems, as well as organisations that are going through a growth phase.

It’s important to note that factoring is not the same as a loan. Unlike a conventional business loan, a factoring facility is based on the sale of an asset (accounts receivable). It therefore does not create a liability on the balance sheet.

Factors also offer much more than just working capital. They provide professional support services, including sales ledger administration and credit control. When a business partners with a factoring company, this firm acts as an extension of the business’s accounts department, saving hours and hours of valuable business time.

Business lending for SMEs: what makes factoring an ideal solution?

  • It’s accessible:
    Poor access to business finance is a stumbling block for many smaller companies. Many SMEs discover that their balance sheets do not meet bank loan qualification criteria, or that they are not eligible for finance due to issues with their credit records in the past. Factoring, however, assesses eligibility based on the business’s fixed assets, stock and debtors’ book. A business with creditworthy customers may be able to access a factoring facility even when its balance sheet and credit record fall short of the big banks’ loan conditions. Factoring is therefore playing a valuable role in closing the funding gap faced by so many SMEs.

  • It’s flexible:
    While traditional banking overdrafts have a fixed limit, factoring is a working capital facility that’s linked to a business’s sales ledger activity. The amount financed therefore scales up as the business expands – and is not capped according to the value of bricks and mortar. Factoring is therefore ideal for businesses that are focused on growth.

  • It’s fast:
    When a business chooses the right factoring company to partner with, there’s no need to wait long for the working capital that’s needed. Merchant Factors can offer the shortest turnaround time in the industry from application to pay-out, because it is a wholly independent factoring company. Merchant Factors does not form part of a broader banking group and it therefore has the authority, flexibility and resources to provide clients with swift, personal service.
Why choose Merchant Factors as a business lending partner?

Merchant Factors understands that every business has unique needs and a one-of-a-kind operational cycle. Founded in 1988, this well-established yet totally independent finance house is agile enough to provide companies with innovative and relevant business lending solutions – as and when needed. These facilities include factoring, stock/trade, bridging and business rescue finance.

For accessible, fast and flexible business finance – contact Merchant Factors today.

Finance beyond the Numbers.