Friday, July 18, 2008

Rand Trust Targets SMEs for R100 mil funding bonanza

Small businesses with good growth potential stand to share R100 mil in funding from Rand Trust, the pioneer of invoice discounting in South Africa. With the company growing through the suces of its Invoice discounting and Asset Based Funding innitiatives small business owners stand to be the big winners in 2008.

Rand Trust explains that the major assets on any company’s balance sheet are fixed property, plant and machinery and debtors and stock.

Usually, these assets are funded by mortgage finance for land and buildings, suspensive sales and leases for plant and machinery and ABF, bank overdraft / creditors to finance debtors and stock.

ABF securitises debtors and stock to provide SMEs with funding to keep pace with growth. With credit sales (debtors), the SME is effectively providing working capital to its client base. If credit terms are stretched, this could throttle business. Research has shown that more than 75% of business failures are caused by lack of working capital despite the failed businesses being profitable. ABF could circumvent this obstacle, Tresidder says.

Utilising ABF could enable the SME to improve profitability by applying the funds raised to settle creditors, thus qualifying for discounts.

Rand Trust grew out of a bureau business that processed invoices and statements on behalf of clients. Clients approached the founder, Hylton Roberts, (who is still a director of Rand Trust) for funding. Rand Trust devised a business model whereby invoices were purchased and working capital provided against these invoices. The demand came from the market as traditional bank finance has not kept pace with the demands of SME funding.

Tresidder says an estimated 5 000 companies out of 50 000 (the market potential) in South Africa are using this concept. “This form of funding will become more important in South Africa as many SMEs will experience growth building up to 2010 but will be unable to fund this growth unless they make use of ABF,” he predicts.

Rand Trust has been successful recently in raising an additional R100 million in funding. They will be aggressively identifying SMEs with growth potential, to provide funding.

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