As small and medium businesses struggle with the impact of load shedding on their operations, SMEgo – an innovative funding platform by Old Mutual – has seen asset finance loans for the acquisition or leasing of solar power systems become the most commonly funded load shedding mitigation measure for SMEs.
This is according to Nobesuthu Ndlovu,Director of Old Mutual SME – who says that SME owners are doing their best to stay one step ahead of the SA power crisis.
Ndlovu said asset financing for SMEs to finance or even rent solar power, was one of the most common load shedding mitigation measures that can be funded, as the initial capital outlay for solar can be prohibitively expensive. She noted that SMEs were severely affected by load shedding which affected not only operations and productivity but also security and stock losses.
“The fundamental problem that load shedding has created is that productive business hours are lost,” said Ndlovu.
“Businesses are not able to service their clients or deliver goods on time. Further to that, damage is caused to machinery and other equipment due to the power surges that arise when power is restored. These events increase maintenance and repair costs which ultimately affects business cash flow.”
She said this situation further impacted SMEs profitability as they could not generate revenue and their costs increased from additional expenses.
“Most SMEs, like large corporates have fixed overheads that still need to be covered and can’t do this if the lights are off,” she said. “Production lines come to a standstill, theft and crime increases, perishables go bad therefore increasing wastage, equipment is damaged, cloud services are disrupted, there are numerous ways different businesses are affected.”
Ndlovu said the current energy crisis therefore meant that SMEs had to explore alternative funding solutions that could keep the power on.
Another common load shedding mitigation measure that could be funded was inventory finance, where merchants, due to the demand, are stocking up inventory levels to sell back-up power mechanisms such as power banks, gas stoves, battery powered lights and even solar powered lights. “Merchants don’t always have cash on hand to stock up on what is on demand, this is where funding for operations becomes important.”
“The biggest challenge experienced by SMEs both new and seasoned business owners is still access to funding. The increase in alternative funders alone is an indication that there is both a funding need and gap.
Old Mutual had noted in its research that SMEs required different kinds of funding based on their specific needs at a point in time. Ndlovu explained: “There are no specific products available for load shedding but rather, financing that may be required as a result of different needs caused by power outages. For example, financing to buy more stock if power outages result in wastage or working capital financing if you need to pay operating costs or asset financing to buy new machinery and equipment.
Even though there is no specific loadshedding funding, key considerations to manage cash flow still needed to be made, which includes managing the debtors and creditors cycles differently; accessing cash for unpaid invoices through invoice discounting; and obtaining a revolving credit line or overdraft to run operations.
SMEgo has been designed to address these funding needs. Through its online turnkey platform, categories of funding include funding for operations, which deals with managing cash flow and funding for growth. The products available include trade finance, working capital, business term loans, purchase order or contract finance and asset finance.
Ndlovu notes that within a month of launching SMEgo, Old Mutual’s turnkey professional service offering for SMEs, the company had had more than 1000 registrations on the platform and of those, 480 applications for funding, with most applications being for asset finance.
“Other funding products available on the platform include trade finance, working capital finance, business term loans and purchase order/ contract finance”, she said
Simple Fast Efficient Funding
Ndlovu says for these reasons and business needs, Old Mutual designed SMEgo to be a central place where funding needs could be met. Currently there are multiple funders that fund different needs that a SME owners can apply for using one application, saving them frustration and time. This functionality is a key resource for a business owner, helping with their core business needs.
Business owners simply state how much funding they are looking for, what they need it for and are then presented with a set of options for which they can apply. The platform tracks the progress of applications with multiple funders. To qualify a business must have been operating for six months; have an annual turnover of R500,000 and have six months valid bank statements.
“At Old Mutual, we understand that funding is a tool used to run your business. We have solutions that help you start, run and grow your business. The funding provided is a component of a holistic value proposition. Over and above this we have solutions to also help you protect your business and assets as well as help your employees save for retirement,” Ndlovu concluded.