The recent announcement by the International Monetary Fund (IMF) that it has revised South Africa’s growth outlook for 2021 upwards to 3,1% from 2,5% echoes sentiment on the ground that the economy is slowly picking up and that the general outlook for business and entrepreneurs is more positive, says Lamna Financial co-founder Charles Meyerowitz.
“As the economy slowly starts to reopen and opportunities are identified, entrepreneurs are eager to take advantage of them, but from our interaction with clients, the biggest obstacle is cash flow and access to finances quickly,” he says.
Meyerowitz says that the Covid-19 pandemic has forced many businesses into a liquidity crisis, but it is important that entrepreneurs keep an eye on the future and key opportunities that present themselves, as opposed to assuming the current situation will continue indefinitely.
“Making rash decisions now, such as selling assets to fulfil cash flow requirements, could be detrimental in a few months or a year’s time. Once the economy comes out the other side those assets will still be gone. A smarter approach is unlocking the intrinsic store of value in assets to bridge the liquidity gap’” he says.
Bridge financing “bridges” the gap between when an entity or entrepreneur is expected to run out of money and when it expects to receive funds at a later date. Meyerowitz says that this type of funding – which Lamna makes available against unencumbered assets – is used to fulfil a company or entrepreneur’s short-term working capital requirements.
“If we take the realistic view that the pandemic will pass – whether we go through more infection waves or not – it is important for entrepreneurs to carefully consider how they source working capital,” he says.
One of the main advantages of bridge financing is the short turnaround time. “In essence,” says Meyerowitz, “an entrepreneur can take advantage of opportunities in almost real-time without having to go through a time-intensive loan application process.” This, he says, is important in the dynamism of business, especially in the entrepreneurial space, where speed and discretion are of paramount importance.
In the unfortunate event of a deal not panning out as expected, there is no long-term debt burden that can last years and affect credit records, he explains.
Meyerowitz shares three tips for entrepreneurs interested in bridging finance:
- Seek out a reputable service provider – always do business with a registered service provider that has a proven track record. Are they able to share how many clients they have served over the years?
- Demand transparency – make sure that the service provider demonstrates transparency and encourages trust along every step of the process, from valuation of the assets to the terms of the contract.
- Uphold your end of the agreement – just as the service provider is obliged to deliver the service as stipulated in the agreement, the responsibility falls onto your shoulders to honour your obligations. This ensures a smooth process for all parties.
