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Financing for
professional services

Your professional services firm has just come across a prospect for expansion into a new city where opportunities abound. But you don’t have the necessary cash to fund the expansion costs, including new hires, higher software costs and more. By letting go of the expansion opportunity, you risk:

Losing opportunities to grow your business
Sacrificing future increases in revenue, cash flow and profit
Overlooking opportunities to diversify your clientele
Passing on the lost opportunity to your competitors

Professional services financing can help you solve this problem. With this financing, and options like Lula’s funding solutions, you can access the funds you need to finance expansion, stay competitive, and invest in physical and human capital.

Below we consider what professional services financing is all about and how you can get access to it in South Africa.

Professional services financing

What is professional services financing?

Professional services financing is a type of business funding where financing companies provide professional service providers the funds needed to sustain and grow their businesses.

Professional services providers include accountants, auditors, lawyers, financial planners, architects, digital marketers, healthcare consultants, business consultants and IT experts, among others. They provide expert services to businesses, which allows those businesses to focus on their core functions.

The professional services industry is often very competitive, and new developments may require a firm to purchase new software (business process automation software, for example), increase staffing strength (hire new experts), increase the salary of their staff (to avoid turnover), and adopt new standards to keep up.

Similarly, growth requires investment in marketing, physical capital and human capital.

Professional services financing provides these firms with the cash flow they need to remain competitive and/or grow.

Who needs professional services financing?

You might need professional services financing if you are a professional services firm that:

You may have the cash to expand and grow your firm (rent new commercial real estate, hire new staff), but using your cash could lead to cash flow challenges that will affect day-to-day operations. In this case, you can keep running your business smoothly with your current cash flow while using the funds from a financing company that caters to professional services firms to fund your expenses in your financial plan.

Expansion requires money, and you may not have the necessary cash to fund it. Does that mean you should overlook an exciting expansion opportunity? With professional services financing, you don’t have to.

New industry realities may require that you increase the remuneration of your staff or even hire new staff with a specific skill set. Or it may be that you need to purchase new software that is crucial to your industry. Given the intricacies of the professional services industry, you need to upgrade to stay competitive. If you don’t have the cash to do so, professional services financing can help you.

Many South African SMEs face cash flow problems. If your professional services business is ever in that situation, professional services financing, or funding alternatives like the solutions offered by Lula, can help you pay for your operating expenses and overheads. This will help you gain some stability until things normalise.

SMEs in South Africa often struggle to access traditional business finance from banks. This is because banks impose stringent requirements (credit score, collateral, etc.), and their processes are tedious and drawn out. If you don’t qualify for traditional finance solutions or can’t endure the tedious process, professional services financing using the funding options from Lula, is a faster and more convenient approach.

If your business experiences low demand in some seasons and high demand in others (during tax season, for example), professional services financing can help you achieve stability in seasons of low demand.

How can you access professional services financing in South Africa?

Given the cash flow challenges that professional services firms face today, you should have an easily accessible source of financing to guarantee sustained growth. Below are two financing options at Lula to consider:

Capital Advance

Lula’s Capital Advance provides you with cash up to R5 million that you can repay in 3, 6, 9 or 12 months, depending on what is most convenient for your business.

Capital Advance is very useful if you are considering expansion. Once the expansion plan has been achieved with Capital Advance, you can start repaying with the extra cash flow generated by that expansion.

You can also use it if new developments in the industry you to make new investments in physical or human capital.

Revolving Capital Facility

Lula’s Revolving Capital Facility provides you with working capital that you can access whenever you need.

If your business faces cash flow problems, then a revolving capital facility is more appropriate, since you can use it any time you need operational cash or working capital.

If you work in a very competitive industry where investment in physical and human capital happens often, then a revolving capital fa

How does professional services financing work?

Suppose your law firm has seen an opportunity to expand into a new city that will cost R1 million. You currently have only R1.2 million in cash, but you don’t want to use it since there are expenses that need to be paid before the investment in a new branch will start to bring in new revenue.

To fund this expansion, you could seek out a R1 million capital advance. Assuming repayment terms are a (hypothetical) 4% interest rate and a 6-month repayment period, your monthly repayment would be R168,616.

Suppose that what you need is a constant source of working capital that you can use whenever you have cash flow challenges.

You can seek out a R1 million revolving capital facility, which works similarly to a line of credit. If you need R200 000 in January, you can take out funding of that amount to reduce your available capital to R800 000. Suppose you repay R210 000 (at 5% interest) in March, then your available capital will once again be R1 million, which you can use as needs arise.

In this way, Lula’s Revolving Capital Facility works like a line of credit, built specifically for business operation needs.

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What are the benefits of professional services financing?

How can professional services financing benefit your business?

Business growth: Professional services financing helps you explore growth opportunities you would otherwise have overlooked due to insufficient cash. With it, you can fund your expansion and take the next step.
Business stability: Cash flow is the lifeblood of a business. “The availability of cash can truly make or break an organisation,” says Kirk McLaren, CEO of Foresight CFO, a financial services firm. “Cash flow, not profit, determines viability.”

Professional services financing

Professional services financing can help stabilise your business during difficult times by providing the cash you need to sustain your business.

Enhance competitiveness: Staying competitive is a crucial goal of professional services companies. With professional services financing, you can stay competitive, attract quality clients, and even charge premium prices.
Retain customers: The competitive nature of the professional services sector means customer loyalty is hard to come by. Clients do what is best for them and they might not stay with a business when there is another one that can provide better value for money.

You must be very competitive to retain customers or win new ones from competitors. By helping you stay competitive, professional services financing is crucial to retaining customers.

Pros and cons of professional services financing

Accessibility: Though professional services financing companies have eligibility requirements (they evaluate accounts receivable, revenue and years of operation, for example) they are far more accessible than traditional lenders. Many financing companies provide funding without requesting a credit report or credit score.
No collateral: The lack of collateral is one reason small businesses can’t access traditional business loans. Financing companies geared for professional services businesses are content to know that your business is doing well, and they won’t require business or personal assets as collateral.
Faster processing: Similarly, with a funding provider like Lula, professional services financing can be quickly processed and accessed, unlike traditional business loans that go through lengthy approval processes.
Flexibility: Professional services financial solutions come in various forms depending on what you need. You can also negotiate favourable repayment terms that are appropriate for your business.

High fees and interest rates: Some financial institutions charge high interest rates and fees to compensate for the above pros.
Mismanagement: Some businesses can misuse the ease of access provided by professional services funding to rack up debt they can’t repay.

How can your professional services firm qualify for funding?

At Lula, a South Africa-based SME funding provider, we aim to help your professional service business stay competitive and grow to its full potential.

We do this by providing business funding (Capital Advance and Revolving Capital Facility) and offering terms that benefit your business.

To qualify for our funding, you need to be:

A South African business

Established for at least a year

Generating a minimum of R500,000 in annual turnover

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With Lula, you get:

Easy and quick application: You can complete the application within a few minutes. Our process has been streamlined so that by linking your bank account we can conduct a quick and real-time assessment of your business without requesting any paperwork.
Quick access to funds: Once your application has been successful, we provide funds within 24 hours.
Competitive fees: We ensure that the accessibility of our business funding in South Africa does not lead to high interest rates that will affect your ability to repay.
Fixed costs: There are no hidden fees that can harm your business. The costs are fixed over the repayment period. We do not increase our rates while repayment is ongoing.

*Your data is safe with us. Your bank shares just your latest read-only transaction data with us: we don’t save or store your username or password and you can unlink your account at any time.

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