Products
Funders in South Africa have really come to the party over the last few years. They have mixed and matched the best of different traditional products and each Funder creates products in a unique way. The Problem is, there are dozens and dozens of Funders… and they all do things ‘their way’.
How do I know which Funder is right for me. That’s where Beyond Banks adds value to me…. The relationships with Funders allows Beyond Banks insight into How Funders do things and What they are looking for, and Which types of businesses they accept.
The below is just a few ways things are done and are no means a complete list of what our Funders offer.
Bridging Finance
This term is used these days for just about every type of Funding. Typically Bridging Finance is the release of funds to you in a Property Sale environment. If you have sold your Fixed Property (house, apartment, etc) and the Purchaser of your Fixed Property has signed all the necessary documents and there are no suspensive conditions outstanding, a Bridging Finance product will release a portion of the equity (ie the amount you will get when the final transaction goes through on the sale).
Based on:
All documents being signed by the purchaser, and no suspensive conditions outstanding. A large portion of what is due to be paid to you will be advanced by the Bridging Finance company.
Positives:
No waiting for your funds to be paid to you.
Challenges:
From a financing point of view, this can be a very high risk transaction for the Funder. If something does go wrong (and every now and again it does), they have no real security. Because of this high risk thought, the pricing for Bridging Finance can be quite high.
Often used for:
Just about anything.
Cash Flow / Debtor Funding / Invoice Financing / Invoice Discounting
An uncapped Cash Flow Facility that releases the Cash tied up in outstanding invoices that are not yet due to be paid. A way of getting a portion (50% to 80%) of the invoices paid to you within 24 hours of you delivering the goods or completing the services. Funders call this a number of things: Debtors Funding, Invoice Financing, Invoice Discounting, Factoring, etc.
The different names means that there are slight variations to how the Facility works.
Based on:
Strength of the customers. The Funder will look closely at the way the customers are paying and who the customers are. The strength of my business’s Balance Sheet has limited impact on the Approval. The focus is the customer base.
Positives:
Once the Facility is set up, I receive between 50% and 80% of the invoice value you produce to your customer/s. The facility is mostly uncapped i.e. as my Debtors Book grows, so does my access to the Cash Flow tied up in the invoices. When I present a copy of the invoice and proof of delivery/proof of service completion that the customer has signed I receive my money within 24 hours (sometimes sooner).
Challenges:
The primary security is security over the Debtors Book. If your business is seasonal and your sales decrease, so does
my access to Cash Flow. If my business is seasonal I may need an additional facility to support the months when turnover is very quite and not producing enough invoices to support my cash flow needs. Pricing can be between 4%
and 7% of the invoice value.
Often used for:
Cash Flow, purchasing extra stock at discounted prices, taking advantages of early settlement discounts with Suppliers / Creditors.
Contract Funding
This is a way for my business to receive a cash advance on work I have yet to perform on a contracted job. The contract specifies milestones and payments based upon my progress toward completing the project. The Funder will provide finance based on the terms and conditions of the Contract.
Based on:
Strength of the Contract, the customer who has signed the Contract, and my past performance on other Contracts / ability complete the Contract.
Positives:
Cash injection to help complete the contract
Challenges:
The customer has to be relatively strong and have a good reputation in the market place. There has to be clear mile stones of what constitutes the work being completed and / or milestones of when portions of the contact is completed.
Often used for:
Financing ongoing projects and new projects
Creditor Financing / Reverse Invoice Financing / Reverse Invoice Discounting / Supply Chain Finance
Where as Invoice Financing is the Supplier (Creditor) who wants to release Cash Flow from outstanding invoices owed by their customers, Reverse Invoice Financing (or one of the many names given) is a Cash Flow Facility where the Buyer (Debtor) knows of a Supplier (Creditor) who is struggling with Cash Flow and / or is struggling to supply goods to them.
An example of this is where I place an order with my supplier and they say they are waiting on stock themselves (often because they don’t hold enough stock for their customers needs), or the Supplier only has a limited amount of stock that I need (again, because they don’t have enough stock to support their customer base).
I as the Customer can enter into a Reverse Invoice Financing Agreement with a Funder who will settle the existing invoices that I owe to my supplier, plus all new invoices that my Supplier provides will be paid early as well. I pay the Funder directly.
As the Applicant, once the Applicant enters into the agreement with the Funder, they can use this Facility with a number of their Suppliers.
Based on:
Outstanding invoices that the customer to the Supplier has not paid yet and are not yet due for payment yet (credit term invoices)
Positives:
For the Customer, (your Supplier) is paid early by the Funder, releasing Cash Flow to them and giving them the opportunity of buying more stock to sell to you. You receive a small early settlement discount, meaning you pay less for your goods.
Challenges
The Supplier is being paid early so the cost of the Funding is absorbed by the Supplier.
Challenges:
For the Supplier. Receives payment directly from the Funder, weeks or months before they are supposed to be paid by
the Customer. Releases Cash Flow allowing them to buy more stock to sell, and decreases Cash Flow pressure in the
background.
Often used for:
Cash Flow purposes for the Supplier, decreasing Inventory Days for the Supplier, increasing stock availability by the Customers.
Fixed Loan
A lump sum paid to me as a once off value. Fixed payment amount paid monthly over a fixed period of between 6 months and 7 years.
Based on:
Past affordability calculations as per my business bank statements and financials. Sometimes additional security in the
form of a bond over fixed property is taken.
Positives:
Easy to manage my monthly budgeting due to its fixed repayment value. A lump sum is paid to me at the beginning
the lending period. Interest rates are usually fairly reasonable. If I am comfortable to pay slightly higher interest
then I could get an unsecured fixed loan.
Challenges:
As my needs increase, the Fixed Loan will not increase. Once the loan value is used, I will often not receive any more until I have settled the full value with the Funder. Even if I don’t need the full value from the beginning or during the loan period, I will still have to pay the fixed monthly repayment value, irrespective of my need for cash flow strength that month. Security needed by the Funder could be a bond over fixed property, for good interest rates. Interest rates could be much higher if I do not have fixed property to give as security, but could still be available to me.
Often used for:
Purchasing other fixed property, vehicles, increasing stock holding, importing or exporting goods. Supporting the Work-in-progress flow.
Freight Finance / Trade Finance / Import Finance:
Funding provided to me for the purchasing of stock in South Africa and / or importing stock from outside of South Africa.
Based on:
Strength of my Financials, Shareholders Balance Sheet and the paperwork that I have / will have in place to
purchase the stock.
Positives:
Doesn’t impact my other cash flow Facilities such as an overdraft or Debtors Funding. It is an extra Facility to help with
hedging foreign exchange values so that I am not at risk of currency fluctuations. Funding helps with additional import costs such as freight, insurances, and custom clearances. Savings by cutting out the supplier based in South Africa, means my cost of goods often hugely decrease.
Challenges:
Need a strong business Balance Sheet to support this Facility. Funder will need to see all the relevant import / stock purchasing documentation. You need to purchase a large amount / high value stock from abroad as the overseas supplier often wants to only sell large quantities.
Often used for:
Purchasing stock at hugely reduced costs from overseas.
Import Finance / Trade Finance / Freight Finance
Funding provided to me for the purchasing of stock in South Africa and / or importing stock from outside of South Africa.
Based on:
Strength of my Financials, Shareholders Balance Sheet and the paperwork that I have / will have in place to purchase the stock
Positives:
Doesn’t impact my other cash flow Facilities such as an overdraft or Debtors Funding. It is an extra Facility to help with
hedging foreign exchange values so that I am not at risk of currency fluctuations. Funding helps with additional import costs such as freight, insurances, and custom clearances. Savings by cutting out the supplier based in South Africa, means my cost of goods often hugely decrease.
Challenges:
Need a strong business Balance Sheet to support this Facility. Funder will need to see all the relevant import / stock purchasing documentation. You need to purchase a large amount / high value stock from abroad as the overseas supplier often wants to only sell large quantities.
Often used for:
Purchasing stock at hugely reduced costs from overseas.
Invoice Financing / Invoice Discounting / Debtor Funding
An uncapped Cash Flow Facility that releases the Cash tied up in outstanding invoices that are not yet due to be paid. A way of getting a portion (50% to 80%) of the invoices paid to you within 24 hours of you delivering the goods or completing the services.
Funders call this a number of things: Debtors Funding, Invoice Financing, Invoice Discounting, Factoring, etc.The different names means that there are slight variations to how the Facility works.
Based on:
Strength of the customers. The Funder will look closely at the way the customers are paying and who the customers are. The strength of my business’s Balance Sheet has limited impact on the Approval. The focus is the customer base.
Positives:
Once the Facility is set up, I receive between 50% and 80% of the invoice value you produce to your customer/s. The Facility is mostly uncapped i.e. as my Debtors Book grows, so does my access to the Cash Flow tied up in the invoices. When I present a copy of the invoice and proof of delivery / proof of service completion that the customer has signed I receive my money within 24 hours (sometimes sooner).
Challenges:
The primary security is security over the Debtors Book. If your business is seasonal and your sales decrease, so does my access to Cash Flow. If my business is seasonal I may need an additional facility to support the months when turnover is very quite and not producing enough invoices to support my cash flow needs. Pricing can be between 4% and 7% of the invoice value.
Often used for:
Cash Flow, purchasing extra stock at discounted prices, taking advantages of early settlement discounts with Suppliers / Creditors.
Letter of Credit
A letter of credit, or “credit letter,” is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the right amount.
Based on:
Paperwork between me and my Supplier. Strength of my Balance Sheet. History with the Supplier.
Positives:
Reduce my cash flow pressure due to me not having to pay deposits, forward buy foreign currency and only having to pay for goods once they arrive.
Challenges:
Based on strength of my Balance Sheet, paperwork between my Supplier and me.
Often used for:
Stock purchasing, both within South Africa and importing.
Overdraft
Access to a fixed amount that I can dip into and pay back whenever I are able to. Made available to me by a traditional bank as a capped value. It is automatically linked to my Bank Account and allows me to use it when the business has run out of its own credit funds.
Based on:
Strength of Balance Sheet, Bank internal scoring, once off evaluations of the Debtors Book.
Positives:
I only pay for what I use during the month. Receive typically 40% of my Debtors Book as a once off cash flow injection availability.
Challenges:
Is On-Demand repayment i.e. the bank could cancel the overdraft at any time. Does not increase in line with any growth in your Debtors Book, often isn’t reviewed by the Bank for at least 12 months between applications. Releases
only a small portion of the true value of the Debtors Book.
Often used for:
Cash Flow.
Property Backed Loan
See ‘Revolving Loan’ and ‘Fixed Loan’ for a description. The name ‘Property Backed Loan’ is another name for a Fixed Loan / Revolving Loan’.
Purchase Order Financing
When you have firm orders from a Customer/s and you need additional funding to purchase the stock to fulfil the order and /or to purchase the stock to then convert into the finished goods for your customer.
Based on:
A Purchase Order from a customer. Strength of the customer who is ordering (i.e. likelihood of them paying).
Positives:
The strength of the customer can support your application if my Financials aren’t particularly strong. My cash flow isn’t impacted by me paying out large quantities of cash to my Supplier / Creditor.
Challenges:
The paperwork needs to all be in place. This is considered a relatively high risk because my customer may state that
the product that they were given isn’t exactly what they wanted and refuse to pay (this does happen). The costing of Purchase Order Financing can be on the high side, but I can incorporate these costs into the end price my customer pays me.
Often used for:
Large or expensive purchases of stock or of raw material to be manufactured into the final product.
Rental Finance
This product does exactly what it says.. or does it. There are two types of rental finance (sometimes called Asset Finance).
Option 1:
Option 2:
Re-financing Assets that are owned by a Rental Funder, but has a decent Equity value (i.e. the difference between what is owed and the true market value). A Rental Funder may give me additional Cash Flow funding based on the refinancing the Asset with them. This gives me the option to continue using the Assets, and releasing funds to me.
Example:
Asset already financed with an outstanding value of R300,000. Asset market value of R800,000 i.e. an equity value of R500,000 if you sold it. You want to use the Asset and not sell it, so you refinance it. The new Funder settles the existing R300k and provides you with 50% of the equity value in the form of cash flow, or financing additional Assets to grow your business.
Based on:
Financing new Asset: Strength of the Balance Sheet.
Based on:
Re-financing of existing Assets: Equity value between outstanding finance and market value. Strength of Balance Sheet and other Assets in the background.
Positives:
Very cheap funding of assets. Typically Prime or up to Prime less 3 (for businesses with a healthy Balance Sheet. Benefit of using the Asset to grow my business while not having huge impact on my cash flow (very cheap financing), and the benefit of releasing Cash / Equity for buy/rent more Assets or to release Cash Flow.
Challenges:
Valuation of the Asset often has to be done by an expert who charges for the valuation process. The Funder will often
use a third party Valuer. The cost of the valuation does not guarantee that application will be approved.
Often used for:
Release of Cash Flow and / or purchasing of more assets to grow the business.
Reverse Factoring / Reverse Invoice Financing / Reverse Invoice Discounting / Supply Chain Finance
Where as Invoice Financing is the Supplier (Creditor) who wants to release Cash Flow from outstanding invoices owed by their customers, Reverse Invoice Financing (or one of the many names given) is a Cash Flow Facility where the Buyer (Debtor) knows of a Supplier (Creditor) who is struggling with Cash Flow and / or is struggling to supply goods to them.
An example of this is where I place an order with my supplier and they say they are waiting on stock themselves (often because they don’t hold enough stock for their customers needs), or the Supplier only has a limited amount of stock that I need (again, because they don’t have enough stock to support their customer base).
I as the Customer can enter into a Reverse Invoice Financing Agreement with a Funder who will settle the existing invoices that I owe to my supplier, plus all new invoices that my Supplier provides will be paid early as well. I pay the Funder directly. As the Applicant, once the Applicant enters into the agreement with the Funder, they can use this Facility with a number of their Suppliers.
Based on:
Outstanding invoices that the customer to the Supplier has not paid yet and are not yet due for payment yet (credit term invoices).
Positives:
For the Supplier. Receives payment directly from the Funder, weeks or months before they are supposed to be paid by the Customer. Releases Cash Flow allowing them to buy more stock to sell, and decreases Cash Flow pressure in the background.
Challenges:
The Supplier is being paid early so the cost of the Funding is absorbed by the Supplier.
Often used for:
Cash Flow purposes for the Supplier, decreasing Inventory Days for the Supplier, increasing stock availability by the Customers.
Revolving Loan
A lump sum is made available to me. I use what I want during the month and pay interest at the end of the month for what I have used. This is very similar to an overdraft and is generally a much larger Facility value than my overdraft.
Based on:
Affordability of the past Financials and Bank Statements. On the security given i.e. the value of the Property.
Positives:
An additional Facility over and above an Overdraft. Allows you to use only what you want during the month and your interest charges can be controlled by me because I choose how much to use.
Challenges:
Due to the flexibility of the Facility, interest rates are normally quite a bit higher than a Fixed Loan, which guarantees the
Funder an income over the Fixed Lending Period. Overdraft security is only the Debtors Book and personal surety. A Revolving Loan often has additional security in the form of a bond registered over fixed property.
Often used for:
Working Capital such as Importing Goods, Supporting a growing Credit Term customer base, paying suppliers early to gain settlement discount, Stock Holding, Supporting the Work-In-Progress capital needs, etc.
Supply Chain Finance / Reverse Factoring / Reverse Invoice Financing / Reverse Invoice Discounting
Where as Invoice Financing is the Supplier (Creditor) who wants to release Cash Flow from outstanding invoices owed by their customers, Reverse Invoice Financing (or one of the many names given) is a Cash Flow Facility where the Buyer (Debtor) knows of a Supplier (Creditor) who is struggling with Cash Flow and / or is struggling to supply goods to them.
An example of this is where I place an order with my supplier and they say they are waiting on stock themselves (often because they don’t hold enough stock for their customers needs), or the Supplier only has a limited amount of stock that I need (again, because they don’t have enough stock to support their customer base).
I as the Customer can enter into a Reverse Invoice Financing Agreement with a Funder who will settle the existing invoices that I owe to my supplier, plus all new invoices that my Supplier provides will be paid early as well. I pay the Funder directly.
As the Applicant, once the Applicant enters into the agreement with the Funder, they can use this Facility with a number of their Suppliers.
Based on:
Outstanding invoices that the customer to the Supplier has not paid yet and are not yet due for payment yet (credit term invoices)
Positives:
For the Customer,(your Supplier) is paid early by the Funder, releasing Cash Flow to them and giving them the opportunity of buying more stock to sell to you. You receive a small early settlement discount, meaning you pay less for your goods.
Positives:
For the Supplier. Receives payment directly from the Funder, weeks or months before they are supposed to be paid by the Customer. Releases Cash Flow allowing them to buy more stock to sell, and decreases Cash Flow pressure in the background.
Challenges:
The Supplier is being paid early so the cost of the Funding is absorbed by the Supplier.
Often used for:
Cash Flow purposes for the Supplier, decreasing Inventory Days for the Supplier, increasing stock availability by the Customers.
Trade Finance / Freight Finance / Import Finance
Funding provided to me for the purchasing of stock in South Africa and / or importing stock from outside of South Africa.
Based on:
Strength of my Financials, Shareholders Balance Sheet and the paperwork that I have / will have in place to purchase the stock.
Positives:
Doesn’t impact my other cash flow Facilities such as an overdraft or Debtors Funding. It is an extra Facility to help with hedging foreign exchange values so that I am not at risk of currency fluctuations. Funding helps with additional import costs such as freight, insurances, and custom clearances. Savings by cutting out the supplier based in South Africa, means my cost of goods often hugely decrease.
Challenges:
From a financing point of view, this can be a very high risk transaction for the Funder. If something does go wrong (and every now and again it does), they have no real security. Because of this high risk thought, the pricing for Bridging Finance can be quite high.
Often used for:
Just about anything.
Often used for:
Working Capital such as Importing Goods, Supporting a growing Credit Term customer base, paying suppliers early to gain settlement discount, Stock Holding, Supporting the Work-In-Progress capital needs, etc.
Unsecured Loans
The Funder will lend me a lump sum in the form of a Fixed Loan or a Revolving Loan.
Based on:
Strong business Financials and or Assets in the background and track record. Affordability based on the Last 6 to 12 months bank statements.
Positives:
Often very quick turnaround between Application and Pay Out. Sometimes as quick as 4 working days.
Challenges:
Only available to those businesses with strong Bank Statement record/ Balance Sheets and / or Assets.
Often used for:
Just about anything.