Unpacking Business Funding Types: Your Comprehensive Guide for South African SMEs

For established small and medium enterprises (SMEs) in South Africa, accessing the right capital at the right time is crucial for growth, stability, and seizing new opportunities. Yet, the funding landscape can be daunting, filled with a myriad of options, each with its own terms, advantages, and ideal use cases.

This comprehensive guide will demystify the most common types of business funding available to South African SMEs, helping you understand which solution best fits your specific needs, whether you’re looking to manage cash flow, invest in expansion, or bridge a temporary gap. We’ll also highlight how platforms like OneUp are revolutionising how established businesses connect with these vital financial resources.

The Traditional Stance: Bank Loans

For decades, banks were the primary port of call for business funding. While they remain a significant player and offer long-term solutions for large-scale asset and property acquisitions, securing a traditional bank loan in South Africa often involves:

For decades, banks were the primary port of call for business funding. While they remain a significant player and offer long-term solutions for large-scale asset and property acquisitions, securing a traditional bank loan in South Africa often involves:

• • • Lengthy Process: Expect extensive paperwork and prolonged approval times, stretching from weeks to months.
    • Demanding Criteria: High collateral demands, impeccable credit histories, a long trading history, and sustained cash flow are often prerequisites. This proves exceptionally difficult for businesses needing finance precisely during less cash-flush periods.
    • Risk Aversion (Regulatory & Economic): Constrained by stringent regulatory burdens and South Africa’s economic volatility, banks often perceive SMEs as higher risk, making them hesitant to lend, especially without substantial security.
    • Inflexible Terms: Loan products tend to be standardised, with limited room for negotiation or adaptation of repayment structures, often leaving your “personal banker” with little leeway.

Best Suited For: Established, large, long-term asset-backed investments with potential to add to an already sustained cashflow, like property acquisition or significant equipment purchases. However, for businesses seeking more agile or tailored solutions for these needs, specialist alternative funders (like those in OneUp’s network) now offer competitive and flexible alternatives up to R50 million.

Why many SA SMEs look elsewhere: The reality for many established South African businesses is an urgent need for capital that banks often cannot meet due to speed, flexibility, or stringent requirements. This has fuelled the rapid growth of the alternative finance market in SA, which is projected to continue growing significantly, with the alternative lending platform market expected to grow at a Compound Annual Growth Rate (CAGR) of 25.5% from 2025 to 2030 to reach an estimated US$ 221.7 million by 2030¹

The Agile Response: Short-Term Alternative Funding

Short-term funding solutions, typically repaid within months to two years, have surged in popularity among South African SMEs. They are designed for agility, speed, and addressing immediate cash flow needs or short-term opportunities.

1. Working Capital Loans

What it is: An injection of cash to cover day-to-day operational expenses, including cashflow assistance, purchasing inventory & stock, covering marketing budgets, or even managing tax/VAT bailouts. It’s about maintaining liquidity and ensuring your business has enough liquid assets to cover its short-term liabilities.

How it works in SA: Working capital loans are often offered as a lump sum with fixed repayment schedules, or as a revolving credit facility (similar to an overdraft but often with more flexible terms). They can be secured or unsecured, depending on the lender and the business’s financial health. Many providers offer fast approvals, often within 24-72 hours.

Best Suited For: Businesses with seasonal fluctuations, managing inventory cycles, covering unexpected expenses, or bridging gaps between large projects and payments. Essential for maintaining healthy cash flow.

Pros for SA SMEs:

• • • • • Speed: Funds can be accessed very quickly, crucial for immediate needs.
        • Flexibility: Can be used for a wide range of operational expenses.
        • Accessibility: Often less stringent requirements than traditional bank loans, with a focus on consistent revenue.
        • No Collateral: Alternative Funders do in general not require collateral for short-term loans, but often do want directors to sign a personal guarantee to make sure they have skin in the game to see the transaction through.

Cons for SA SMEs:

• • • • • May have higher interest rates than long-term bank loans due to their short-term nature and potentially higher perceived risk.

2. Bridging Finance

What it is: A very short-term loan designed to “bridge” a specific, temporary cash flow gap until expected funds are received. This is often used when a payment is guaranteed but delayed, such as securing Tender or Contract Finance for a new project, or covering costs for a Purchase Order Finance before payment is received.

How it works in SA: Lenders provide immediate funds, knowing that a definite future payment will cover the repayment. Repayment terms are typically very short, from a few weeks to a few months, usually not exceeding 12 months. Approval can be incredibly fast (24-72 hours), and some providers don’t require traditional credit checks, focusing instead on the certainty of the incoming funds.

Best Suited For: Businesses awaiting large invoice payments, property transfers, insurance payouts, government tender disbursements, or securing a new opportunity while waiting for an existing asset sale to conclude.

Pros for SA SMEs:

• • • • • Exceptional Speed: Among the fastest funding options available.
        • Targeted Solution: Addresses very specific, short-term liquidity needs.
        • Less Focus on Traditional Collateral or Performance: Often relies on the certainty of the incoming payment.

Cons for SA SMEs:

• • • • • Generally higher interest rates due to the short term and inherent risk of the “bridge.”
        • Requires a clear, demonstrable incoming payment to be repaid.

3. Merchant Cash Advances (MCAs)

What it is: A lump sum advance provided to businesses that accept card payments. This is often referred to as a Point of Sale (Card Machine) Advance. Repayment is made through a small, agreed-upon percentage of future daily or weekly credit/debit card sales until the advance plus a “factor rate” (fee) is repaid.

How it works in SA: MCAs are not legally classified as loans, which means they are often less regulated than traditional loans. Instead of interest, they use a “factor rate” (e.g., 1.1 to 1.5), which is multiplied by the advance amount to determine the total repayment. The repayment amount fluctuates with your sales – you pay more when sales are high, less when they are low.

Best Suited For: Retailers, restaurants, service providers, and any business with consistent credit/debit card sales that needs quick access to capital and prefers flexible repayments tied to revenue.

Pros for SA SMEs:

• • • Very Fast Access to Funds: Often approved and disbursed within days.
    • Flexible Repayments: Payments adjust to your daily/weekly sales, which can be helpful during slower periods.
    • Less Stringent Credit Requirements: Focuses on card transaction history rather than traditional credit scores or collateral.

Cons for SA SMEs:

• • • Very High Cost: When converted to an Annual Percentage Rate (APR), the cost can be significantly higher than other funding types, potentially reaching up to 200%.
    • Can Impact Cash Flow: Daily deductions can sometimes impact liquidity, especially if sales unexpectedly drop.
    • Debt Cycle Risk: Due to high costs, some businesses may find themselves needing subsequent advances to repay previous ones.

 

4. Invoice Factoring / Invoice Discounting

What it is: A type of debtor finance where a business sells its outstanding invoices (accounts receivable) to a third-party financier (a “factor”) at a discount, receiving immediate cash upfront. This is often termed Invoice Financing. The factor then collects the full payment directly from your customer. With invoice discounting, the business retains control of collections.

How it works in SA: The financier typically advances 70-95% of the invoice value upfront. Once your customer pays the full invoice amount to the financier, you receive the remaining balance, minus the financier’s fees. This is particularly common in industries with long payment terms (e.g., corporate, government contracts).

Best Suited For: Businesses that invoice other businesses (B2B) or (B2G) government entities and experience cash flow delays due to long payment terms (e.g., 30, 60, or 90 days). It’s not ideal for businesses with individual consumers.

Pros for SA SMEs:

• • • Immediate Cash Flow: Frees up capital tied in outstanding invoices.
    • Debt-Free Funding: It’s a sale of an asset (your invoice), not a loan, so it doesn’t add debt to your balance sheet.
    • Credit Control & Collection (with factoring): The factor often takes over the burden of collections, freeing up your time.

Cons for SA SMEs:

• • • Cost: Fees can be significant, though less volatile than MCAs.
    • Customer Awareness: Your customers will know a third party is involved in collecting payments (for factoring).
    • Not Suitable for All Businesses: Only works for B2B dealing with large client companies or B2G invoicing.

 

5. Asset Finance (Equipment & Machinery Finance, Fleet Finance)

What it is: Funding specifically used to acquire or refinance essential tangible movable assets for your business. This includes equipment & machinery finance (e.g., manufacturing machines, construction equipment), fleet finance (vehicles for transport, logistics, sales), IT hardware, and other business-critical assets. The asset itself typically serves as collateral for the financing.

How it works in SA: Asset finance usually takes the form of either Leasing or Hire Purchase.

• • Asset-backed lending (ABL) is common. This is where any asset (equipment, inventory, receivables) can be used as collateral, and a cession or pledge of those assets is standard. So, while it’s not always the specific equipment being financed that’s ceded, some asset is almost always ceded or pledged for asset-backed finance.
  • Leasing: The financier owns the asset, and you pay regular “rental” instalments for its use over a set period. At the end of the term, you can often return the asset, purchase it for a residual value, or renew the lease. This option is beneficial for assets that depreciate quickly or require frequent upgrades.
  • Hire Purchase: You make regular payments over a set period, and upon making the final payment, you own the asset. This is similar to a loan secured by the asset, often preferred when you intend to own the asset long-term. Both methods allow businesses to acquire necessary tools without a large upfront capital outlay, managing cash flow effectively. OneUp connects you with private funders who specialise in asset finance for both new acquisitions and leveraging existing assets like movable equipment and machinery.

Best Suited For: Businesses that need to acquire new or used equipment, machinery, vehicles, or technology to improve efficiency, expand operations, or meet production demands, without tying up significant working capital. Also useful for businesses looking to free up cash flow by refinancing existing assets.

Pros for SA SMEs:

• • • Preserves Capital: Avoids a large upfront cash payment, keeping your working capital liquid for day-to-day operations.
    • Immediate Access to Assets: Gain access to necessary tools quickly, enabling growth and efficiency.
    • Tax Benefits: There may be tax deductible expenses depending on the structure (lease vs. hire purchase).
    • Flexible Terms: Funders often offer terms tailored to the asset’s lifespan and your business’s cash flow.

Cons for SA SMEs:

• • • Asset as Security: The asset itself is collateral, meaning repossession is possible if repayments are missed.
    • Total Cost: While reducing upfront costs, the total cost of the asset over the finance term may be higher than an outright cash purchase.
    • Depreciation Risk (Leasing): If the asset depreciates faster than expected, you might be paying for an asset that’s worth less than its outstanding value (though often a factor in lease terms).

 

6. Property Finance (Property Acquisition & Development)

What it is: Specialised funding for established businesses seeking to acquire, develop, or improve commercial, industrial, or even certain residential properties for business use. This includes property acquisition (buying land or existing buildings), covering transfer costs associated with a property sale, and property development (financing construction, renovations, or expansions, including shop-fit finance as part of a larger project).

How it works in SA: Unlike standard bank mortgages, private funders often provide more flexible terms for property finance, especially for commercial or development projects. They look at the viability of the project, the collateral value of the property, and the business’s overall financial health. Repayment structures can be tailored to development phases or anticipated income from the property.

While traditional banks offer these, OneUp can match you with funders like Geddes Capital, CorpFin, and Business Partners, who can offer more flexible, often faster, and tailor-made solutions for property acquisition and development finance, bypassing many traditional bank hurdles.

Best Suited For: Established businesses looking to invest in their own premises, expand into new locations, develop new commercial spaces, or undertake significant property renovations and fit-outs. Ideal for businesses with long-term growth strategies tied to physical assets.

Pros for SA SMEs:

• • • Long-Term Asset Building: Allows businesses to own appreciating assets, providing stability and a platform for future growth.
    • Tailored Solutions: Private funders can offer more flexible terms, repayment schedules, and quicker approvals than traditional banks for complex property deals.
    • Leverage for Growth: Provides capital for significant expansion projects that would otherwise be out of reach.

Cons for SA SMEs:

• • • Significant Commitment: Property finance often involves large sums and long repayment periods (e.g., 10-20 years), requiring substantial long-term commitment.
    • Property as Security: The property itself serves as significant collateral, meaning it’s at risk if repayment terms are not met.

 

7. Trade Finance (Export & Import Cost Finance)

What it is: Specialised funding designed to facilitate international trade transactions, covering the costs associated with exporting goods to international markets or importing raw materials, components, or finished products into South Africa. It helps bridge the gap between paying suppliers (often upfront for imports) and receiving payment from buyers (often on credit terms for exports).

How it works in SA: Trade finance solutions can include various instruments like Letters of Credit (LCs), Guarantees, Bills of Exchange, and specific short-term loans tailored for import or export cycles. For importers, finance might cover the purchase of goods from overseas suppliers. For exporters, it might provide working capital to produce goods before the buyer’s payment is received, or cover export-related costs like shipping, insurance, and duties. These solutions help mitigate risks associated with international trade (e.g., currency fluctuations, payment defaults) and provide necessary liquidity.

Best Suited For: South African businesses actively involved in international trade, whether importing goods for local distribution or production, or exporting products and services globally. Crucial for managing cash flow cycles unique to cross-border transactions.

Pros for SA SMEs:

• • • Facilitates Global Trade: Provides the necessary capital and risk mitigation to engage in international commerce, expanding market reach.
    • Improved Cash Flow: Bridges payment gaps inherent in long international supply chains, allowing for timely payments to suppliers and smoother operations.
    • Risk Mitigation: Can offer protection against commercial and political risks in international transactions through instruments like Letters of Credit.

Cons for SA SMEs:

• • • Complexity: Trade finance instruments can be complex and require a good understanding of international trade regulations and documentation.
    • Cost: While enabling trade, fees and charges associated with trade finance can add to the overall cost of goods.
    • Specific Requirements: Funders often require detailed documentation of trade contracts and supply chains.

 

Navigating Your Options: The OneUp Advantage

Finding the perfect funding fit for your established South African business amidst a diverse landscape can feel overwhelming. That’s where OneUp cuts through the noise, connecting you to precise solutions

OneUp isn’t just a comparison platform; it’s a dynamic, user-controlled marketplace designed for maximum efficiency and value. Here’s how OneUp ensures your business gets the best deal:

• ONE Application, Multiple Opportunities: Forget the endless hoops and paperwork. You complete just one streamlined application on OneUp. Our intelligent system then analyses your information to identify the most likely funder matches (up to 5 reputable and registered funders).
• Your Data, Your Control: You own your information and remain in complete control. You select which of these matched funders you wish to apply to and invite to tender for your business. OneUp then customises your application to precisely meet the specific needs of the funder you’ve chosen to engage.
• Funders Compete, You Win: Once invited, funders make offers directly in the app. Crucially, funders can see and competitively bid against each other in real-time to secure your business. All offers are transparent, visible to both you and the invited funders.
• Unlock Optimal Value: This live competitive bidding process means no more standard terms and generic offers. Funders are incentivised to provide their best possible deal, at lightning speed, ensuring you receive the most favourable value derived from genuine market competition.
• Seamless Decision Making: Compare live, transparent bids side-by-side. This clarity empowers you to select the funding solution that perfectly aligns with your business’s unique needs.

OneUp transforms the funding experience, putting your business firmly in control. By creating a competitive environment where funders actively compete for your business through a single, smart application process, we ensure you always secure the optimal funding solution – efficiently and transparently.

Click here to compare business funding options now and find your perfect match with OneUp!

References / Sources:

¹ Grand View Research. (2025). South Africa Alternative Lending Platform Market Size & Outlook, 2030. [Accessed from: Grand View Research website or a reputable research database citing Grand View Research’s data, e.g., https://www.grandviewresearch.com/horizon/outlook/alternative-lending-platform-market/south-africa ]

² The Banking Association South Africa (BASA). (2018). Hurdles Faced by Financial Institutions in Financing Small and Medium Enterprises (SMME). Available at: https://www.banking.org.za/wp-content/uploads/2019/04/Hurdles-in-SME-Financing-Final-Report.pdf

³ International Finance Corporation (IFC) & World Bank. (2019). The Unseen Sector: A Report on the MSME Opportunity in South Africa. Available at: https://www.ifc.org/content/dam/ifc/doc/mgrt/2019-01-msme-opportunity-south-africa.pdf