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How to get financing as an SME

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Before applying for financing, business owners should get their accounting and tax affairs in order to fully understand the financial performance and condition of their business. Developing a clear understanding of their business and its environment is also essential, as is creating a game plan for the next 6, 12, 18 and 24 months. In other words. SMEs need to plan the trail for the business.

Tyler Posthumus, Group Chief Financial Officer at Retail Capital

Prepare a provisional income statement, balance sheet and cash flow. The cash flow forecast should let you know when you’ll need financing and how much financing you need. Given this, business owners should start looking for financing at least a few months before they need it to make sure they have enough time to do their homework.

Business owners should also consider whether they need equity or debt financing. A start-up, for example, will probably need the former. However, start-ups that need debt financing often find it more difficult to obtain financing using traditional channels.

It can be difficult to get a lender interested in new businesses. But lenders like Retail Capital, which are disrupting the traditional lending model, only need a six-month track record and, most importantly, will be able to continue supporting these businesses through phases of growth. Once a funder has a history of the business and repayment of a facility, the conversation becomes easier when looking at new lines of credit down the line.

When shopping, SMBs can negotiate a pre-approved line of credit because they can get a facility they can draw on when needed. However, many of these types of agreements have a time limit and, if not used, the SME will have to reapply.

It is also wise for business owners to consider taking a minimum amount of funding up front to start developing a balance sheet with a funder, as this is a good way to start a positive relationship. When the business needs a larger amount, there is already a base from which to start their conversations.

Choose a financier

As a critical first step, it is important to research the funder. SMEs are advised to develop a clear image of the different donors available to them and the products they offer to businesses of their size. For example, banks may offer term loans and overdraft facilities while other lenders offer products like bill discounting and working capital facilities like Merchant Cash Advance.

When you look at a potential mate, understand their story. Do they have an irreproachable reputation in the market? This is true for equity and debt lenders. For lenders in particular, check to see if they join an organization that advocates responsible lending practices.

When the business owner is convinced that he has refined his research, he should ask himself a few important questions before settling down.

How does the funder treat their clients when the going gets tough?

Over the past year, business owners have seen firsthand if their funder really supports the businesses they lend to and what they do to help a business through tough times. While all funders are different, a major advantage of Retail Capital funding is that repayments are tied to a percentage of revenue.

This effectively matches the repayment obligations with the repayment capacity of the business. This concept is so simple and is one of the factors that has revolutionized our product over traditional forms of debt.

For example, during the Covid-19 lockdown level 5, 90% of Retail Capital’s clients were not allowed to trade, so this arrangement effectively disabled their refunds until they were operational again. “The response from our clients has been overwhelmingly positive and has transformed the perception of clients by seeing us as a funder into a true partner”.

Understand the pricing structure of the product

No matter which funder an SME goes to, they should fully understand the fees and all the implications before signing on the dotted line. For example, Retail Capital’s working capital product is a fixed mark-up on advance on advanced capital. These conditions apply regardless of the reimbursement period. The certainty on the total refundable amount is something our clients appreciate because there is no need to understand multiple fee structures or compound interest.

Negotiate financing conditions

It depends on the power of the business application. “If you have a strong balance sheet, good assets and a stable cash flow, you are an attractive client, which would make your trading easier. But, as a guide, when negotiating with a funder, you need to be clear about what they want and focus on negotiating that specific point. It could be the duration, amount, rate or even frequency of repayment. This negotiation should be informed by the use of funds.

By following these steps, SMEs should be able to hire a funder and obtain financing to enable their growth and sustainability.


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