10 alternative funding solutions for South African SMMEs

Alternative funding solutions for SMMEs are financing options structured around a transaction rather than a balance sheet. The main ones in South Africa are purchase order funding, invoice discounting, invoice factoring, supply chain finance, working capital funding, asset finance, merchant cash advances and inventory finance.

Key takeaways

• Alternative funding is secured by the order, invoice or asset – not by property you may not have.
• Purchase order funding covers the cost of delivering a confirmed order or tender.
• Invoice discounting releases cash from invoices already issued, without waiting out 30, 60 or 90 day terms.
• Discounting keeps your client relationship. Factoring hands collection to a third party.
• The right option depends on where your cash gap sits – before delivery, or after invoicing.

For SMMEs, securing funding can feel like joining a club where already being a member is the entry requirement. You need funding, but to be awarded it you need a track record that funding would have built. This is where alternative financing comes in.

So what are alternative funding solutions for SMMEs?

Alternative funding solutions are a toolbox of options outside traditional term lending. They provide flexible, tailored and accessible financing for small businesses, and access to funding remains one of the main constraints on SMME growth.

Assessment models built around trading history and balance sheet strength are a poor fit for a young business with a confirmed order. Funders like Sourcefin use fit-for-purpose solutions that look at the opportunity in front of you and your potential to deliver it. Here are ten of them, plus a bonus.

Examples of alternative funding for SMMEs

1) Purchase order funding, also called tender funding

You land a large purchase order but lack the cash to buy supplies for it. Purchase order funding finances the fulfilment of large orders or tenders, secured by the purchase order itself, so you can buy inventory and deliver without draining reserves.

2) Invoice discounting

Invoice discounting advances cash against an unpaid invoice, which acts as the security. You settle once your client pays. Rather than waiting 30, 60 or sometimes 90 days, you access the cash now. Our comparison of purchase order funding and invoice discounting sets out which applies when.

3) Embedded lending

Funding offered inside the tools you already use – accounting software, e-commerce platforms – rather than through a separate application. An e-commerce platform might assess your sales history and offer finance on the platform itself. Accenture's research on embedded finance for SMEs covers how the model works.

4) Supplier credit facilities

Your suppliers extend payment terms, letting you pay for goods over a longer period. Negotiating favourable terms with suppliers frees up cash flow without any external funder involved.

5) Invoice factoring

Instead of waiting for customers to pay, you sell the invoice to a third party at a discount and receive cash upfront. Your customer then pays that party directly. Factoring is a close relative of invoice discounting, with the key difference being who collects – see invoice factoring vs invoice discounting.

6) Working capital funding

Working capital is what remains once current liabilities are deducted from current assets – cash in the bank, stock in the storeroom, money owed by customers, set against what you owe suppliers. Working capital funding, whether a line of credit, an overdraft or a short-term facility, covers day-to-day operating costs.

7) Supply chain finance

Supply chain finance bridges the gap between paying suppliers and being paid by customers. It optimises payment terms between buyers, suppliers and financiers, improving cash flow across the chain and reducing financial risk. Purchase order funding, invoice discounting and factoring are all forms of it.

8) Asset finance

Equipment, machinery and vehicles are expensive to buy outright. Asset finance lets you lease or finance them instead, acquiring what you need to operate without draining cash reserves.

9) Off balance sheet funding

Structures that give access to capital without adding debt to the balance sheet – leasing premises or equipment rather than taking a term loan that appears as a liability. The business looks stronger to future funders and investors as a result.

10) Merchant cash advance

A lump sum in exchange for a percentage of future card sales until the advance and its fee are repaid. It suits businesses with steady card takings that need capital quickly. Our guide to the merchant cash advance in South Africa covers the real costs.

11) Inventory finance (bonus)

We said ten. Inventory finance funds the products a company plans to sell, secured by the inventory itself, making it easier to keep shelves stocked without tying up cash.

Why alternative funding matters for growth

Where conventional funding is hard for SMMEs to access, these solutions give businesses with genuine potential a route to realise it. They are built around the specific funding need of a smaller business rather than asking it to look like a larger one.

How Sourcefin fits in

We take a simple, straightforward approach to funding. Our full-service purchase order funding covers supplier sourcing, matching goods to the order, and delivery – not just the money.

You also do not have to pause growth while waiting on invoices. Sourcefin's invoice discounting turns unpaid invoices into working cash, and we walk the process with you rather than handing over funds and stepping back. See whether we are a match by applying for funding.

Sources & references

• Accenture – embedded finance for SMEs
• SEDFA – government-backed finance and support for South African small enterprises