Funding for Entrepreneurs

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One of the biggest challenges faced by SME’s is access to finance. While this may feel like an extremely difficult hurdle to overcome, it doesn’t have to be. There are actually numerous options for entrepreneurs to investigate, below to name a few.

Finfind

Finfind aims to address the challenges SMME’s face in this area. It is an innovative, online platform that matches the seekers of business finance with appropriate funders. There is a comprehensive database of more than 450 SMME finance offerings from the public and private sector funders in South Africa.
They provide a number of finance offerings such as startup finance, expansion finance and equity finance to name a few. A team of expert researchers maintain the funder database. The finance product information is updated on a daily basis. They also provide quite a bit of insight regarding the challenges to accessing finance, types of funders and finance products. It’s well worth checking out their website: https://www.finfind.co.za

South African Banking System

Most entrepreneurs site banks as the most difficult source of finance. The reason being is that they require a long list of  items before a they will finance you. It is therefore key that before approaching the Bank, you understand what your requirements are and have a look at their offerings. Most of the banking sector offer the same or similar funding options:
  • Overdraft facilities which is ideally suited to managing cash flow.
  • Business revolving credit is a line of credit available as and when it is needed and repayments are typically fixed monthly instalments.
  • Medium-term loans are ideally suited for capital expenses and repayable for a period of two to seven years, but can be longer. Interest and repayment tend to be linked to prime, how much collateral you have, and the value of the asset you need finance for.
  • Business mortgage / Property finance used in the event you wish to buy or renovate property for your business or convert part of a residence into office space, this is the loan to investigate.
Interestingly, there are a number of Banks that have developed offerings specifically aimed at Entrepreneurs. FNB, for example, manage Vumela which assists early stage ventures as well as expanding businesses. Firstly, they offer assistance to businesses that are too large for micro finance, or those that don’t meet the rigid credit criteria and finally those that are too small for private equity.
ABSA also have an ESD funding initiative. This initiative seeks to offer entrepreneurs access to development finance through partnerships with corporate clients. Their procurement portal offers access to markets by creating a virtual marketplace in which entrepreneurs and procurement teams are brought together. Most noteworthy is their non-financial support such as both financial management training as well as mentorship assistance.
When deciding on choosing the bank as your funder, here are a list of documents which they normally require:
  • A short company profile or a brief description of the business.
  • Financial statements for the previous financial year.
  • Management accounts for the period between the end of the previous financial year and the present.
  • Cash flow forecast that includes how you will use the finance you are applying for.
  • Bank statements for the last 6 to 12 months.
  • Company founding documents (and shareholders agreement if relevant).
  • IDs and personal bank details for all directors or owners.
  • Personal assets and liabilities of all directors or owners. Be sure to include details of any personal or business sureties signed by any of the directors.
  • Details of what collateral is available.
  • Details of any personal surety contracts the directors or owners have signed.

ESD funding

There is approximately R26 billion in funding available from corporate South Africa. This is in the form of Enterprise and Supplier Development funding based on a percentage of Net Profit After Tax. ESD funding aims to create economic growth and sustainability for entrepreneurs in South Africa. Enterprise and Supplier development is a priority element on the BBBEE Scorecard and together with Procurement are deemed the drivers of BBBEE. The contributions can be in the form of both monetary or non-monetary assistance. This means that corporates can offer anything from a direct grant to an interest free loan.

Angel Investment

An angel investor is typically a wealthy professional who is able to provide an entrepreneur with start-up capital in exchange for equity in the business or a fixed percentage interest on the loan. As a result, angel investors are rather picky when choosing their investments. They want to ensure that their hard earned money is well spent and there is a return on investment. Additionally many investors help entrepreneurs grow by bringing a host of assets such as knowledge, networks and capital.

Crowdfunding

Relatively new to the scene, crowd funding is an exciting way to gather finance. It works in a similar way to angel investment, except there are many individuals that pledge varying amounts to the business in exchange for equity, interest, or other more creative returns. Multiple investors contribute to innovative business pitches in exchange for equity shares in the company. Raising capital alongside multiple sources reduces the investment risk. Businesses gain validation and build brand awareness through the capital raising process.
Uprise.Africa is an example of equity crowdfunding. It is an innovative platform to discover, learn and invest in local entrepreneurs. Here are the Uprise.Africa requirements:
  • Form part of any industry
  • Look at raising between R500 000 and R50 million
  • Already generating revenue
  • Good returns (10% – 40%)
  • Have a strong team
  • Be in operation for at least 2 years
  • Have no litigations

Family and friends

Finally, you can turn to family or friends for a loan. This may be a popular option but it is not without some concerns. Family or friends will expect repayment, but they often do not state the repayment terms. As a result this may lead to disputes. When accepting loans from a number of family members, record keeping can become onerous.
Therefore there is definitely more than one way to crack an egg. Have a look at your options. What type of funding do you require? What are the conditionsthat the funder will expect in return? Make sure your financial compliance is in order as this is a minimum requirement from most funding options.

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