When you're looking for the right finance
to fill your funding gap, you'll need to
navigate the jargon out there too. Here
are some of the types of funding and what
they refer to:
Trade finance: These are flexible, short-
term borrowing facilities, linked to specific
import or export transactions. They
are available for firms regardless of the
method they use to trade, whether open
account, collections or documentary credit
basis.
Asset & equipment finance: This is
funding to help companies invest in capital
equipment, in order to increase their
production capacity.
Debtor finance: This is an umbrella
term used to describe a process to fund
a business using its accounts receivable
ledger as collateral.
Asset-based lending: This is a business
loan secured by collateral (assets). The
asset-based loan, or line of credit, is
secured by inventory, accounts receivable,
equipment, and/or other balance-sheet
assets.
Specialised growth funding: This can
be a medium-term loan, repaid in fixed
monthly instalments, that is a viable
alternative to equity funding for specific
projects.FUNDING SNIPPETSThe South African SME Finance
Association has been set up to promote
good lending practice in the unregulated
SME Finance Sector. The association
was launched given the rapid growth
of the SME Funding Marketplace in
South Africa, in order to create industry
standards to ensure SME customers are
fairly treated and the reputation and
sustainability of the sector maintained.
SASFA welcomes applications from
all SME finance providers, including
regulated entities within the South
African banking sector, to become
members and stand together in the
adherence of roles and responsibilities
to protect customers and prevent the
industry from falling into the same traps
as micro-lenders."It will put pressure on less scrupulous
players to provide a fair and transparent
product to SMEs," says Trevor Gosling,
CEO of Lulalend, a founding member
of SASFA, together with Karl Westvig
of Retail Capital and Dov Girnun of
Merchant Capital. "One of the challenges
in this industry is that there are low
barriers to entry and it can be a high
margin business," says Westvig. "It is also
a fairly unregulated industry as deals fall
outside the National Credit Regulations."
Dov Girnun notes the importance of
having best practice guidelines "on
pricing, disclosure, risk assessment and
collection, amongst other things."
Web: http://www.sasfa.co.zaWhen you hit a
speed bump in your
business, or you want
to take advantage of an
opportunity to grow, it's
common to reach out to
friends, family, banks and
alternative funders to
get hold of the funds you
need. The problem there
is that the institution
you're borrowing from
doesn't always act in
the customer's best
interests – are they
ensuring affordability,
transparency of terms
and conditions, and
supporting you in
what you want to
achieve? While a
perfectly responsible
lending sector is
ideal, it is also critical for
you, as the borrower, to
understand that you are
clear on the details of the
loan that you are taking
out. Here are some do's
and don'ts:
▪^ Don't^ engage in
stacking – this means
taking on more than one
short-term lender. Having
several loans open witha number of lenders can
cause a business's demise
instead of their prosperity.
▪^ Do be honest with
yourself and ask yourself
if your business can afford
the repayments, especially
if income fluctuates.
▪^ Do find out if the
interest rates are fixed,
and if not, what will
happen to your business if
they increase over time.
▪ Don't engage with
a lender who is not
interested in your
business plan, or
developing a customer
relationship with you.
A responsible lender will
look to take on an adviser
role in your business.Are you a responsible borrower?
Know your
financing terms
Association established to encourage
transparent lending