Category SMMEs

Feeling the impact of junk status? Alternative funding options can help!

31 May 2017 Kevin Vlietman, Transaction Capital Business Solutions
Kevin Vlietman, Commercial Executive at Transaction Capital Business Solutions.

Kevin Vlietman, Commercial Executive at Transaction Capital Business Solutions.

While the impact of junk status depends heavily on how fiscal authorities respond after the decision, there’s no doubt that both consumers and businesses will start to feel the pitch. The cost of funding will increase; currency depreciation induces inflation and money lending tightens, which could prove painful for small businesses in the short to media term.

In fact, the cost of running a business is likely to keep increasing, and small business are likely to look at ways to take the pressure off their already strained resources and maximise current operations to get the best returns. While streamlining operations is certainly important, managing the business cashflow is critical.

Cash flow is the lifeblood of any business – and particularly small and medium businesses who don’t have massive additional cash to fall back on, when times get tough or when debtors don’t pay. As such, it’s easy to see why the main reason for failure when it comes to small businesses is overwhelmingly cash-flow related. Surprisingly though, despite the valuable insight cash flow provides 90%1 of companies across Europe, the Middle East and Africa don’t have a transparent view into their cash flow.

Getting smart about cash flow not only means that you can survive leaner months, but very importantly, it means your business is able to look at business opportunities and growth areas without being hampered by uncertain flow of working capital.

Growing a business, we know, has never really been about relying on others – it’s your ideas, your implementation and your risk. But without financial support, a sounding board for advice and very possibly outsourcing some of your core business functions – there is not enough time in the day, to focus on business growth too. And now – especially in a tougher, more competitive business environment - it is about optimising your working capital to ensure bottom line growth and a cash flush business. So what are your options?

The good news is that today, there are more options than the traditional banks - there are alternate lines of credit and funding available to businesses who need a helping hand – businesses who want to expand but can’t seem to find the disposable cash; and businesses who have a great offering with constrained cash flow. It is about seeking them out and identifying which solution best works for you.

Cash flow acceleration through debtor finance and property backed lending are two key areas of alternative business financing that are available but certainly, the right solution should be chosen – dependant on the business’s needs, for it to make a difference.

If you are a small business that requires immediate access to cash flow to meet your current financial obligations, such as; paying suppliers and making sure salaries are on time, then invoice discounting is for you. Invoice Discounting provides you with cash where it wouldn’t have been available otherwise – allowing businesses to fund cash flow requirements by selling invoices to obtain short term funds – instead of waiting between 90 to 120 days to get paid – turning your invoices into instant cash. In fact, often those in the manufacturing sector are prime examples for this type of funding – where the immediate need for raw materials dries up the businesses cash flow. This is the simplest way to fund your business growth by simply using your current sales to fund your next order.

When your business is struggling with cash flow or working capital requirements, and you don’t have sufficient value in existing invoices, you could structure a trade finance facility against residential or commercial property where equity exists. This Property Backed Loan facility can be structured in two ways either where equity on your property is assessed and a certain value is then lent to you and repaid in equal instalments over a fixed period or where an overdraft facility is granted whereby you service the interest portion of monies borrowed monthly.

The most important thing to consider when gaining finance is not how much you want from the financial services provider but rather, how best this financing model suits your business, your cash flow concerns and the ability of this model to drive change within your business. There are alternative funding options available and while the economy may feel the pitch of the downgrade, your business doesn’t have to.

1 EMEA Operational Cash Index, Cashfac Technologies and East & Partners, 2015

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