Securing funding for construction companies in South Africa is a big challenge.
Business owners in South Africa know that the challenges facing the construction industry have been severe in recent years. Inflation, extreme weather conditions and labour shortages have had a profound impact on the economy.
If you’re one of them, you’ll know that the demands of business coupled with a lack of cash flow can have a negative impact on day-to-day operations, including:
- Covering the cost of inventory and daily expenditure
- Having cash reserves for unexpected expenses
- Investing in business growth activities
Yet the right business support for your construction company is within reach if you know where to look. Careful research of business funding providers is key to this.
Read on to explore the SME funding options open to South African businesses today.
Skip the bank interviews and lengthy audits. Get access to construction financing quickly and with less hassle through Lula’s Revolving Capital Facility. Apply for up to R5 million and receive your funds in as little as 24 hours.
What funding options are available for construction companies?
Narrowing down the right funding for construction companies can solve many different issues. It can help with meeting business goals, lighten cash flow issues, kick-start growth and prepare your business for future economic problems that may arise.
Catherine Wijnberg, founder of Retola, stresses the importance of this: “The SME sector is particularly vulnerable to economic downturns and economic shocks… SMEs need to brace for yet another unpredictable year.”
South African SMEs can protect themselves by finding adequate funding sources.
Here are some of the most common financing options a start-up can access in South Africa, with a summary of their important features, including:
- The qualifying criteria to unlock the funds
- How you’ll repay the debt
- The estimated time it will take for you to get the money.
1. Venture capital
Venture capitalists and private equity firms can offer funding for construction companies with high growth potential.
Data from the Aspen Network of Development Entrepreneurs shows that development finance like this is the most abundant source of funding in South Africa right now, with a funding range average of over five times that of a traditional bank.
Often reserved for businesses with a proven track record, venture capital funds are ideal for propelling growth.
Construction finance is given in exchange for equity in the business venture. This type of funding demands high returns and is difficult to secure.
Here’s a summary of what you need to provide for this type of finance:
- Qualifications: Business plan, revenue KPIs, robust financial health and adept risk management.
- Repayment: Equity exchange.
- Estimated time to access funds: Varies case by case but can take anywhere from three to six months.
2. Angel investors
Securing an angel investor can provide hefty long-term business funding. To get this, you’ll need to ensure that your construction business can deliver high returns with a solid business plan that prioritises growth.
This avenue may take significant time before you see any funds. It also often requires you to relinquish a large part of your stake in the company to secure funding. The requirements are:
- Qualifications: Early-stage business, market traction, financial projections, proof of concept and an experienced team.
- Repayment: Equity exchange.
- Estimated time to access funds: Securing a prospective angel investor and funds can take three to six months or more.
3. Invoice financing
Unpaid invoices can cause massive headaches and are a major reason business owners seek funding for construction companies.
Invoice financing, then, is ideal if cash flow has taken a hit due to money owed.
Invoice financing companies will purchase these invoices, giving you the capital in hand. To qualify, these companies don’t just look into your credit score, but the credit history of those you have invoiced, too.
Depending on the company, they may charge a fee depending on the total value of your invoice, or only give you 70-90% of its value. Requirements may include:
- Qualifications: Credit score, invoices, proof of work completed, payment documentation, lien waivers.
- Repayment: There are no repayments, but service fees may be involved.
- Estimated time to access funds: Anywhere between 48 hours and three weeks.
4. Business credit cards
Much like a personal credit card, a business card allows you to spend now and repay the funds at a later date. This is ideal for a small business that is experiencing cash flow issues, but needs to purchase construction materials right away.
When exploring how to get funding for a construction company, a solid credit score is a prerequisite for business credit card ownership. This is an ideal route if you’re comfortable with higher interest rates, and can repay the balance at the end of every month. Some of the requirements are:
- Qualifications: Financial statements, personal and business credit reports, usage plan and business licence.
- Repayment: On top of the balance used, there are minimum monthly payments, late fees and annual fees.
- Estimated time to access funds: Depending on the provider, it can take seven to 20 days.
5. Equipment financing
Equipment financing may be the answer if you’re looking into funding for heavy equipment for construction companies in South Africa. This kind of business funding allows you to take out a loan, or lease equipment, with regular payments made over time.
With a loan, once it is paid off, the equipment is yours. With a lease, however, you may be given the option to purchase the machinery once the lease is up, or return it.
This allows business owners to quickly access machinery and spread costs over time. General requirements usually include:
- Qualifications: Legal documents, tax returns, collateral and credit score.
- Repayment: Fixed or variable monthly payments. Some lenders also require a deposit.
- Estimated time to access funds: Approximately one to two weeks.
6. Working capital funding
Working capital finance covers operational costs, including payroll, rent and material costs, and can help prepare for unpredictable events like load-shedding and sudden price rises.
The rapid price increase of material costs in South Africa – 23% between April 2023 and 2024 – is an excellent example of this type of unforeseen expense.
Banks, credit unions and SME lenders offer working capital funding and examine construction companies’ creditworthiness to varying degrees to help out with these unpredictable events. Yet, some offer faster solutions than others.
With Lula, for example, business owners can access up to R5 million in working capital finance within 24 hours of applying.
Trevor Gosling, co-founder and CEO of Lula, highlights this in an interview with Venture Burn, stating, “The expedited funding access we provide has also been instrumental in helping SMEs navigate operational challenges spurred by load-shedding.”
- Qualifications: Identification, proof of address, bank statements.
- Repayment: Your choice of a 3,6,9 or 12 months repayment plan for a Capital Advance.
- Estimated time to access funds: As little as 24 hours.
7. Government grants
The South African government offers a range of grants to SMEs, including those who need funding for construction companies.
For example, their Black Industrialist Scheme (BIS), in particular, helps black-owned start-ups in industrial infrastructure, vessel building and repair, and manufacturing.
The benefit of grant funding is that it does not need to be repaid. However, it’s more difficult to obtain, and often has strict criteria.
Along with government schemes, it’s worth searching for private foundations offering grants to support a variety of projects.
- Qualifications: Project proposal, financial projections, insurance and liability insurance.
- Repayment: As these financing solutions are awarded, no repayments are needed; however, failure to meet agreed-upon conditions may result in the return of funds.
- Estimated time to access funds: Several months, depending on the government body or organisation.
8. Bridge financing
What is bridge financing? Put simply, it’s a quick way to cover immediate expenses, like salaries, rent or financing a new project before more long-term funding comes through.
It’s a great way to steer your business through short-term cash-flow hiccups.
Bridge financing can help you in a bind, but the cost of borrowing is higher than that of other loan options due to its short-term nature.
- Qualifications: Debt-to-income ratio, credit score, collateral, proof of income and construction plans.
- Repayment: Interest rates vary from 2% to 16% and usually last from 6 months to 3 years. Some providers also charge an exit fee, late penalties, and prepayment penalties, unlike Lula’s Capital Advance, which comes with one fixed transparent fee.
- Estimated time to access funds: A few days to a month, depending on the financier.
What to consider when choosing funding options
Choosing the right type of construction finance solution is just the first step; selecting the right lender is the next stage in securing business funding.
Here are some details to consider when weighing your options:
1. Criteria to qualify
Construction company funding starts with eligibility.
Narrow down your options by ensuring you meet the criteria of the funding provider. This could include requirements surrounding:
- Annual revenue
- Time in business
- Credit score
- Business plan
- Amount being requested
2. Interest rates and repayment terms
Any good business funding properly outlines interest rates and provides a definitive repayment plan. Beyond that, seek a financing solution that allows flexible early repayments without penalising you.
3. Application process
As far as application forms go, the less hassle, the better. Paperless applications are always a good sign. Keep in mind that traditional financing solutions from banks add time and bureaucracy, which can affect the timeliness of construction projects.
Funding options like Lula’s Revolving Capital Facility, an alternative to traditional construction financing options, skip the demand for detailed information, offering a two-minute digital application process. You don’t need reams of bank statements or a sky-high credit score to get funded by us: instead, you can get a swift decision and money in your bank in as little as 24 hours.
4. Convenience
Finding funding for construction companies doesn’t need to be difficult if you don’t want it to be.
Explore financing options that prioritise convenience. Look for online support, no requirements for branch visits, and funds deposited directly into your bank account.
5. Transparency
Opt for a company that gives you all the information you need upfront before you even begin applying – including information on repayment schedules, repayment amounts and their disclosure of additional fees, like administrative costs.
How Lula helps finance construction businesses
Lula can help remove operational hurdles and provide funding to boost growth when cash flow falls short in your construction business.
This includes financing options for:
- Staffing costs
- Project bidding
- Inventory management
- Project delivery
- Expanding operations
What’s more, Lula helps you get it done faster than traditional financing solutions. We prioritise your time so you can keep up with unexpected demands or unforeseen financial needs.
We take care of everything online, but if you’re looking for human interaction, then you can speak to the Lula Customer Success team directly whenever you like via our multiple channels.
Ready to get funded within as little as 24 hours? Start by using Lula’s funding calculator to get an estimate of what your repayment plan would be.
It’s that easy to get started.
Choose funding that empowers your construction business with upfront payment terms, instant access to capital and no hidden fees. Find out more about Lula’s Revolving Capital Facility, a transparent funding model made for South African SMEs.
