South African businesses in the ICT sector tend to hit a wall when it comes to cash flow: their outgoings typically leave before they get paid.
Engineers and developers need their pay from day one of a project, not the day the client settles. Licences, cloud subscriptions, and hardware are also often payable upfront, sometimes for a discounted annual subscription (in USD), but still due now.
ICT firms often find themselves at a shortfall that can severely impact how they do business and expand operations.
The good news is that funding options exist to cover this gap. Read on to find out about six of the best.
1. Lula Cash Flow Facility
Lula’s Cash Flow Facility lets you draw down funding of up to R5 million once approved, and it only charges interest on what you owe, with no monthly account or admin fees. There’s also no fee for settling early.
ICT businesses with unpredictable cash flow can cover salaries, overheads, and other expenses in less than 24 hours, so they can confidently staff the new project the same week that it starts.
Why It Works
Lula stands out from other providers because of their quick and efficient approval process. They link to your bank’s read-only data to get a full picture of your business health, instead of focusing solely on credit scores and statements. They simply ask that you have one consecutive year of trading under your belt, a monthly revenue of R40 000 or more, and SA registration.
It’s a funding set-up that’s worked for over 25 000 SA businesses since 2014, many of which use Lula on multiple occasions as they increase their operations.
2. Sourcefin
With Sourcefin, you don’t even need to handle the cash yourself. Instead, they pay your suppliers directly against a confirmed order or award letter.
Many business owners will recognise this as purchase order funding, and it’s a simple but effective funding solution for many businesses, particularly those on the cusp of a large project.
Why It Works
ICT resellers and integrators find this provider particularly useful because it frees up funds when the buyer’s payment process is delayed. Sourcefin asks for CIPC registration, SARS compliance, CSD registration, bank statements and a supplier quote as part of their qualifying criteria.
3. Bridgement
Bridgement’s funding model operates on a 24-hour turnaround with facilities starting from R10,000. Their product scope extends to invoice finance, purchase order finance and a line of credit – all of which come with a 100% online application.
Why It Works
Consultancies and managed service providers whose cash is tied up in issued invoices find this service handy because it frees up funds for resources and overheads. Bridgement requires a turnover above R500 000 and SA registration, plus it connects directly to Xero, QuickBooks or Sage.
4. GENFIN
GENFIN provides short-term funding from R100 000 to R3 million over six or 12 months, with decisions in as little as 24 hours and no early settlement penalty.
Why It Works
Repayment comes without the high interest that burdens other types of lending: you simply pay on the outstanding balance rather than the original amount, so repaying faster costs less. However, your business will need to have an average monthly turnover of R100 000 and up to 12 months of bank statements to qualify. GENFIN does not fund sole proprietors, trusts or partnerships.
5. Merchant West
Merchant West is a well-known provider that supplies asset-based working capital, including invoice discounting and debtor-backed facilities.
They are an established financial institution in South Africa and typically fund larger companies than fintech lenders.
Why It Works
Many established firms have a roster of debtors that they are in the process of waiting for payment from. Merchant West offers a traditional route to free up some of those funds and expects to see full documentation before approval, which can take some days.
6. SEDFA (formerly SEFA)
The Small Enterprise Development and Finance Agency is a government body that lends from R50 000 upwards to SMEs at rates lower than many commercial lenders. Part of their scope is bridging facilities for IT businesses that can prove an existing contract.
Why It Works
SEFA capital can be among the cheapest out there, but the hard part is getting approved. Application processes can be long-winded and demanding and are best suited for businesses that have a ready plan of action and financial projections. For this reason, SEFA funding may be better suited to a planned expansion rather than a project that starts next week.
Choosing Between Them
Often, the type of funding that’s best for your business comes down to the type of project you have lined up, including its costs and timeline. If it looks like it’ll be unpredictable, then a flexible facility that can be drawn on repeatedly is your best bet. A single confirmed tender, meanwhile, might be better suited to something like purchase order funding.
As the best all-round option on the list, Lula can help you in both scenarios, with its cash flow facility designed for quick funding at short notice and its fixed-term funding ideal for making that planned project come together.
