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Financing options for South African SMEs

By Jordan L


May 8, 2023

Only two things in entrepreneurial life are certain: tax season, and needing financing options for SMEs. It’s a universal truth that all small businesses need a funding injection from time to time. Whether it’s to fund cash flow gaps, purchase new equipment, or hire new employees, SMEs are in a semi-permanent state of needing to spend money to make money. Until they reach a new level of growth, that is. That’s the goal!

Luckily, there are plenty of financing options for small South African businesses. Making your decision simply depends on what you need business financing for, how quickly you need it, and how much control over the company you want to retain.

It all sounds a little cryptic now, but it’s quite simple. Let’s untangle your SME financing options together, shall we? 

What are the different financing options for South African SMEs? 

As our wise friends over at Xero tell us, all business financing can pretty much be organised into three categories: 

  1. Equity finance, which entails things like 
  • Angel investors 
  • Venture capitalists 
  • Incubators and accelerators 
  • Friends and family who really believe in the business 
  • Equity crowdfunding 
  1. Debt finance, which entails: 
  1. Other types of financing, like 
  • Grants and incentives 
  • Presales

For the purposes of this article, we’re just going to focus on the first two options. That way, you’ll come away with the overview you need to make an informed decision about what kind of financing options are available to your business. 

On one hand: your equity financing options 

What is equity finance? 

Equity finance is a way of raising capital by selling shares to investors in exchange for money. The pros? This way of raising capital does not require repayment and it spreads the burden of risk across the spread of stakeholders. But it can take a long time to find the right investor, and they have application processes which are as lengthy and complex as traditional lenders. Appealing to an investor also potentially means giving up partial ownership and control of the company, which is often the reason why entrepreneurs strike out on their own in the first place. 

What is the difference between an angel investor and a venture capitalist? 

If you’re looking into equity financing options, you’ve almost definitely come across these terms. But what is the difference between the two? 

An angel investor is normally an experienced business person who invests their own money into your business in exchange for shares. Because they’re generally experienced business owners who know where you’ve been, they also often provide mentorship and guidance. You know. Like an angel. 

On the other hand, a venture capitalist is an expert investor who invests other people’s money – and maybe some of their own – into businesses with exponential growth potential. Venture capitalists tend to pledge more funding but will take a bigger share than most angel investors, and they’ll almost certainly want to sit on the board of directors and have a say in where the company is going. So you’re looking at giving up a lot more control of the company in this scenario. 

These sources of equity financing can grow your business quickly, but choosing them means weighing up how much control and ownership you’re willing to trade for business capital. Once again, you should also consider how long the process of applying for and receiving funding from these sources is. It’s a great long-term growth solution, but SMEs seeking out funding for cash flow and company expansion should consider faster-acting solutions. 

On the other hand: your debt financing options 

A lot of folks are nervous about the term “debt”, and that’s okay. But it benefits the business to understand that, when it’s used correctly, debt is a tool to build your business and take advantage of growth opportunities. We wrote an article about why debt financing is actually cheaper than equity earlier this year – it unpacks some misconceptions about debt financing for South African SMEs. 

When it comes to sourcing debt financing options, you’ve got two routes: traditional and alternative. Traditional financial institutions like banks are typically the first thing that entrepreneurs think of when they imagine taking out a business loan. But the unique demands of South African SMEs have led to the development of an SME financing sector which offers funding solutions that are, above all else, much faster and more accessible to smaller businesses. 

SMEs require access to business funding with much more speed and flexibility than many traditional lenders are capable of providing. Due to the nature of their requirements, traditional credit products are usually inflexible in their loan repayments and need much longer to process more complicated credit applications. 
These obstacles can threaten the growth of SMEs. Finfind data shows the most pressing needs of South African SMEs include funding for new or refurbished equipment, expanding business operations, ad spend, and working capital. Those are pressing short-term needs. As such, small businesses often need access to this kind of financing immediately – lucrative opportunities are fleeting, and small businesses need to be poised and ready to take advantage of them. 

The benefits of alternative financing options 

Wouldn’t it be great if you could know instantly if you could sail through the murky waters of business funding and know instantly if you qualify for financing or not? Even better, what if you could access approved funding quick sticks? Well, that’s what alternative lending is all about. There are plenty of benefits to alternative business financing which make it a more attractive and workable option for many South African SMEs, including:

  • Convenience. With alternative lenders, you can apply online and gain access to funds in under 48 hours. You won’t have to wait in line or fill out piles of paperwork. There are also fewer criteria to meet to qualify for funding – typically, you just need a minimum trading history and demonstrable financial viability to access funding. 
  • Transparency. Some alternative lenders have a free-to-use loan repayment calculator available on their website to give you an idea of how much your business finance is going to cost. So you’ll know what you’re in for before you’ve even applied. Alternative lenders also rarely impose account fees which are not advertised in the initial cost of finance. 
  • Flexibility. Many alternative lenders give SMEs up to 12 months to repay their loans. Unlike most traditional institutions, some alternative lenders won’t even impose an early settlement fee if you repay the loan earlier than that. 

If alternative financing is the route for you, here’s what you should look for – speed and simplicity. Nothing more, nothing less. 

Bridgement: business financing made simple 

Bridgement is an alternative lender that gives SMEs access to up to R5 million in funding in 24 hours or less. It takes two minutes to apply online. We charge a single, simple fee per transaction. No paperwork, and no lengthy waiting periods. It’s just business funding, plain and simple – that’s what we’re about. 


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