Over the past few weeks, more and more business owners have been left in the dark when it comes to running their businesses, and it seems there’s no light at the end of the tunnel. The COVID-19 pandemic has forced more people to work from home (WFH) and explore other hybrid-office models, which leaves South African SMEs powerless on more than one front.
Every solar supplier has blown up with alternative and off-grid energy enquiries. In the long-term, it seems that it will become a necessity to invest in quality equipment that will last longer than Stage 6 outages and the payment terms. The initial capital layout required to make the upfront investment remains one of the biggest challenges entrepreneurs face. The backup power options and associated technology have increased tremendously over the last couple of years and so did the number of financing options. Whether you are buying a generator, UPS or solar solution, it is important to weigh up the quality of the product with the conditions of the financing terms.
Alternative power solutions can range from R3 000 to R3 million or more with the average SME backup system costing up to R300 000. Although solar provides other savings, this is still a large upfront cost and can put a dent into any business’ cash flow. The investment will in almost all cases outweigh the cost, it is now just about bridging the initial capital outlay.
Rental Options
Rental solutions can be used for some power backup installations. It is fixed term, with annual escalations, typically above inflation. Rates, terms and fees will differ from financier to financier and needs to be assessed on an individual basis. The upside provided is that typically all associated maintenance and insurance system uptime is at the cost of the provider. Some of these rental contracts include cancellation clauses and allow the business owner to purchase the installation after a specified term.
Asset Finance
As opposed to rental solutions, maintenance and system operations are at the cost of the owner. It is also a fixed-term product and although it results in the ownership of the equipment, no cancellations typically apply. Asset finance is usually a medium to long-term loan and therefore it is important to ensure that the contract term exceeds any warranties on the equipment.
Commercial Bank Loans
As is the case with most credit solutions, bank loans are at a lower interest rate than most financing options, however, they are often not sizable enough to purchase the full end-to-end solution and cash deposits are therefore necessary. The application process is the same for most banking products, tedious and timeous at best. These financing options range from short to long-term repayments and are linked to the business owner’s banking profile.
Alternative Funding
Because alternative funding, like what Retail Capital offers, is unsecured and unrestricted, it can be used for any alternative energy solution – or whatever your business needs to grow. It is often short to medium term and although the cost of capital is more than a traditional bank loan, the funding can be accessed quickly and seamlessly and requires little to no documentation. Payment terms are also flexible and can be fixed or linked to your business’ turnover so as not to disrupt your working capital.
The decision to make use of alternative power is simple yet requires a good bit of consideration, because it’s an investment that can have a significant impact on your business. If you’re contemplating adopting alternative energy solutions, financing should not be the hurdle preventing you from taking the power back.
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