Do you want to take control of your finances at the start of the new year?
Like most businesses, you might be returning to normal operations after a quiet period in December.
Maybe you’re looking for small business funding to pay your suppliers now, while business picks up over the next few weeks.
This is exactly why more and more businesses just like yours look to refinance their debt at the start of a new year.
In this blog post, we cover refinancing, a step-by-step process to apply for refinancing, and a comparison of the main small business funding options.
If you’re in a rush, here’s a quick summary:
Refinancing involves taking new funding to consolidate your outstanding loans. Many businesses use refinancing for a boost in cash flow. You can apply for refinancing from Lulalend within minutes here.
Below, we’ll cover everything related to refinancing in detail.
A New Year Trend for Small Business Funding: The Rise in Refinancing
All of the leading causes of SME failure can be traced back to cash flow, as stated by the 2015 SME Insights Report, prepared by the South African Institute of Chartered Accountants.
“…from the view of SMEs, they start with too little capital, they collect debtors late, are subject to bad debts, overhead levels that are too high, and they are victims of the risks they haven’t identified. Effectively, a lack of financial planning and control are at the heart of many of their problems,” reads the report.
You recognise these as the challenges that come with building a business you love.
Here’s where refinancing your business debt can make all the difference.
At Lulalend, we conducted an analysis and found a trend: an increase in the number of businesses looking to refinance their debt in January.
Heidi Alson, Lulalend’s Business Funding Specialist, provided context to the data:
“Businesses start the new year and they want to reorganise their financial situation. We often see this renewed commitment to improving business finance at the start of a new year, and refinancing has an important role to play in that process.”
How does Refinancing Work for Small Business Funding
When you refinance your small business loans, your debt is consolidated, explained Alson.
So, for instance, if you have funding from another bank or financial institution, refinancing will cover all of that outstanding debt. Put another way, you are trading those multiple, existing loans for one loan. And that brings your financial obligations into a single place.
What is the Purpose of Refinancing for Small Business Funding?
For most businesses, refinancing helps organise debt and improve cash flow, said Alson.
“Many of our clients who refinance their debt in January benefit from better cash flow. There’s often a gap in getting paid by your customers during the holiday season. Refinancing tides you over, so you can pay your suppliers this month.”
(If you’re struggling with continual late payments, check our blog post for quick strategies to manage late payments.)
How to Determine if Your Business Needs Refinancing
Determining whether refinancing is the best fit for your business begins with gaining clarity on your financial goals.
“You might find there are other financing options that are better suited to your needs. This is where it becomes so important to choose the right lender. You’re looking for a partner and someone that can advise you, so you make a decision that’s truly in your best interest,” said Alson.
For instance, Lulalend also offers a credit facility. And that’s becoming a popular option for business owners who need a line of credit that’s available if they need it, without the need to reapply for finance.
Step-by-Step Process for Refinancing your Business Loans
To prepare for refinancing your business debt, keep these steps in mind to guide the process along faster.
Determine the Goal for Refinancing your Business Loan
As part of your refinancing strategy, consider your objectives.
Do you want to consolidate your debt? Do you want access to cash flow?
Deciding on the goal for refinancing will help you make the best choice.
Take stock of your financial situation
Review your financial obligations.
When you conduct this financial audit, pull together a list of your current debts and the amount owed on outstanding loans.
Gather your Financial Statements
During that audit, you’ll have gathered some of your financial statements. Hold onto these.
For your refinancing application, you’ll need to submit your financial statements.
Choose a Lender
There are tons of refinancing options available to you. But not all of those will be right for your business. We’ve discussed the criteria to consider in the next section.
Some funders will charge application, appraisal, and early settlement costs. Keep a close eye on these amounts: they add up…fast.
The application process depends on the institution. Lulalend, for instance, offers a quick, easy online application. Our scoring technology means we can do a fast assessment on your business, so we can give you a decision within hours.
How to Choose a Lender to Refinance Your Business Funding
Once you’ve concluded your business will benefit from refinancing, assess the available options.
There are two main funders that refinance small business debt:
Any given day in South Africa can, out of nowhere, feel like doomsday for small businesses. Like when the floods in Joburg turn your delivery vehicles into flotation devices. Or Eskom’s stage 8 load shedding schedule transforms your restaurant into more of a blind tasting experience for your patrons. Forget about the weather and the damp coal for a minute and think about all of the unknowns you face as an SME wanting to expand your business… it’s a mixed bag of expenses and possibilities. Our credit facility has proven to be the perfect fit for businesses in this stage of their journey (and a few who’ve needed generators in a hurry).
“A lot of businesses like to have month to month access to a lump sum of funds that they can access at anytime when a particular business need arises,” says Business Funding Specialist Tracy Kukard. “Like a security company who gets a contract for a new site and needs to quickly bring on new staff, new uniforms and new vehicles to service it. Those upfront costs are high, but will be paid back quickly once their contract kicks off. Having a credit facility means they can create the capacity for new business and save on time and costs because they don’t have to apply for new funding each time they need it, and they only pay for the amount they use.”
Lulalend’s credit facility has proven to be really useful to business owners across a number of industries. “From guesthouse owners to dentists; internet service providers and online stores – having that kind of access to funds has helped so many SMEs in our community,” says Business Funding Specialist Lene Schlebusch-Kemp. “And there’s no requirement or limitation on how much you use or what you use it for. If you’re a business looking to grow, fund flexibility is crucial.”
Another flexi-perk about a credit facility is that it offers you the ability to only pay for what you use. If, for example, you access a R300 000 credit facility over a period of 6 months, and you only draw down (Lula speak for make use of) R100 000, your bimonthly costs would be roughly R2000. That’s a rough estimate based on average risk scores, as each company is assessed individually and has a unique cost structure. Unlike traditional lenders, we don’t charge an initiation, admin or credit life fee or any penalty fees if you are able to settle your account early.
How to apply for a Credit Facility
If you’ve taken out funding from Lulalend previously, you’re one step ahead. Having your financial information already linked makes the process of assessing your eligibility for our credit facility even faster.
Contact email@example.com and one of our funding specialists will get in touch to chat you through an application.
Who can apply for a credit Facility
This is the part where we let you know that we are proud of being responsible lenders, which is why we have minimum requirements in place and why each company would need to be individually assessed in order to see if they qualify for our credit facility.
How soon can you access the credit facility?
Once you’ve completed your profile, which includes making sure your financial information is complete, it’s all systems go. You can have access to a credit facility in a matter of hours.
Where can I get more info about Lulalend’s credit facility?
You can read more about how our credit facility works here, or you can watch this quick video which sums it up in just a few minutes:
After working in a small workshop for many years Frank Naidoo decided he was ready to take the leap and start his own business. He’s the owner of a tyre fitment centre in Johannesburg and has geared himself up for a busy festive season and the Black Friday crowds with R500 000 in funding, ensuring he can meet the surge in stock demand.
We chatted to Frank about some of his biggest learnings over the last seven years, what his new business mantra is, and how Lulalend has been a true Friend in Funding to him when he needed one.
What scared and excited you the most about starting your own business?
When you work for someone else, you know you’re going to get a salary no matter what. When you do your own thing, it doesn’t work like that. You worry about things working out, or if something out of your control could happen in the market that could close you down. But it’s also very empowering to know that you’ve got the freedom to make the choices you want and have control over the direction that your business goes.
What are some of the challenges you face as a South African SME?
As a small business you’re already in a competitive market, but one of the biggest challenges I face is the growing emergence of informal businesses which are taking market share and having a negative impact on the industry. Unlike us, these businesses are not regulated, have little to no overheads like insurance, premises rental or department of labour fees and can thus offer prices that we struggle to compete with.
What makes all the hard work worth it?
The pleasure of running this business is that we get to help people. There’s nothing worse than having your car break down, or needing to replace a tyre. We’re all busy people and all we want is to be able to get back to work or our families. Making that experience easy and fast for our clients and delivering excellent customer service at the same time is what makes me feel good about what I do.
It’s that very same reason that I applied for funding with Lulalend. I found I received the kind of experience to what I try to instill in my own business’s customer service.
What was your funding application experience like?
It was fast and easy and I was kept in the loop every step of the way. While I appreciate the speed that my application was processed, it’s not that I necessarily needed the funding urgently. I just really value the service I received which was ultimately the deciding factor for me. I never felt as though I was just an application; each interaction felt personal and I felt took my unique business needs into consideration. It made me feel really good to know that the time was taken to do the relevant credit assessments and that ultimately, Lulalend had faith in me and my business; enough to give me R500 000. That made me feel really good, and like I was more than just a business transaction.
What did you need the funding for?
It’s Black Friday and festive season coming up and so I wanted to be able to make bulk stock purchases in order to get better prices for my customers. It was about being able to meet the seasonal demand, but to also make sure that we are delivering on the absolute best prices we can for our customers. I needed funding to be able to do that, and I believe it will have a huge impact on sales and the relationships with our customers over the next few months.
What advice do you have to give to other small businesses?
You don’t pay salaries; your customer pays salaries. Customers have so much choice as to where they spend their money, make their experience worth it.
Pay close attention to your overheads. Take the time to find the right pricing on things like premises rentals. And have clear sight of what all of your expenses will be. Often you don’t think to factor things like SARS, health and safety inspections or insurance when you first start out. Those are the things that really add up and over a few months could make your current business model unsustainable if you aren’t careful.
Be on the ball and watch your pennies. Stay involved in your business and your finances so that you can quickly pick up if something doesn’t look right.
In our ongoing efforts to be as transparent as possible, we’re choosing some of the questions asked by customers and expanding on them here in our blog. Today’s focus: how our funding differs from a short-term loan. (more…)
According to SME South Africa, 47% of South African small business owners are women. That’s a 6% increase in the female to male entrepreneur ratio. We know that SMEs are a major driver of job creation, so on paper, the future certainly looks bright.
That’s until you factor in that 70% of new businesses fail within the first 18 months. It’s clear that access to funding for women’s business remains a big challenge.
According to one survey, 88% of small businesses are self-funded, have never applied for funding and don’t actually know where to apply for funding. Plus, most claim access to finance is their number one challenge.
So what can be done to support female business owners in South Africa? The answer seems remarkably simple. Funding. More specifically, it’s access to the right information that empowers female business owners to make informed financial decisions.
We’ve put together this handy guide to help you understand how funding can be used to help your business grow.
Challenges Affecting Female SMEs
There is nothing more satisfying than running your own business. But being your own boss does come with its own challenges.
The main business challenges faced by SMEs are:
Access to finance and credit
Cash flow management
Access to support
High startup failure rate
Access to markets
Business funding exists to help deal with some of these challenges. As an entrepreneur and business owner, you need to understand the unique challenges that face your business and determine what kind of business funding can help you overcome them.
Clearing The Fog Around Business Finance
Financial literacy and easy access to information about business funding is key to solving many of the challenges facing your business. You need to know how to plan, budget, invest and have a working understanding of the financial health of your business.
It’s also important to know that applying for business finance is not an indication that your business is struggling. Most, if not all, businesses that have been operating for some time need capital in order to scale.
Funding For Women’s Business In South Africa
In the past, SMEs had to rely on banks to provide a range of financial services, but because of restrictions and tough requirements, actually walking away with the funding needed was difficult. Now there is a range of alternative lending options for SMEs, each with their own pros and cons.
Some forms of finance like bootstrapping, angel investors, venture capitalists, crowdfunding and accelerator programs are only applicable to new businesses and startups.
For existing businesses, funding options include secured and unsecured loans, bank finance and government grants. Funding intended for a specific purpose, such as a bridging loan or purchasing equipment, carry their own minimum requirements.
Alternative lenders have proven a popular and more flexible option for South African SMEs looking for easy access to finance.
Business credit can be a great tool for growing your business and it’s a lot more flexible than a small business loan.
A business credit facility works in the same way as a credit card, which can be a huge advantage for SMEs. It’s always there when you need it, which is great for peace of mind, and means you don’t have to withdraw from your personal funds when you need quick access to working capital.
And the biggest advantage – you only need to apply once.
Using Your Funding
There is a common misconception that only new businesses require funding. The reality is that business funding can be applied for at any stage in a business’s lifespan and can be used to meet many different needs.
Examples of ways you can use your business funding include:
Expansion of your premises
Hiring additional staff
Managing Cash Flow
What you do with your business funding is ultimately up to you. As a business owner, it’s your job to ensure you know exactly what you need funding for and how to use it to achieve your business objectives, whether it’s growth, purchasing seasonal inventory or buying the equipment needed to scale.
As a business owner, you need to understand how your money can work for you. This includes your business debt.
It’s important to understand that there is a difference between good debt and bad debt.
Bad debt does not influence your business growth. In fact, it does the opposite. Drawing on your credit card to cover day-to-day-expenses, luxury items or depreciating assets like a vehicle, counts as bad debt.
Good debt works for your business. Business funding that contributes to the growth of your business or ultimately increases your net worth can be considered good debt.
The Secret To Growing A Successful Business
Accessing finance to grow your business is a big step in the right direction, capitalising on that investment is another smart move. But running a successful business is so much more than maintaining liquidity. It’s about why you decided to do it in the first place.
Research shows that 74% of entrepreneurs start their own businesses because they want to pursue their passion and make a positive impact in South Africa.
We’ve handpicked some inside secrets from successful female SMEs to help you along the path to success:
Tell your brand story in your marketing – it will make customers (and investors) love what you do
Define your values and let them drive your business activities
Connect and engage with your customers and they will return for more
Get tech-savvy and embrace technology
Be a disruptor and show the world what makes you different
Network as much as possible and share your success story
Never sell yourself short – be proud of what you have achieved
Pay it forward and mentor other women business owners like yourself
Grow Your Business With Lulalend
Lulalend is dedicated to helping South African businesses grow and that includes providing access to funding for women’s business.
According to our own market research, 59% of SMEs say access to credit is their biggest business challenge. With Lulalend, you can access up to R1 million in business funding or business credit in as little as 24 hours. Simply apply online and complete our paperless, obligation-free application and we’ll be in touch with your answer.
If you have any questions, get in touch with us today and we’ll help you find the business funding solution that’s the right fit for your business.
South African National Women’s Day celebrates the millions of women who continue to make a difference in our country. We decided to put the female business owner at the forefront this week, to help inspire you on your own road to business success. (more…)