How to Fund your Small Business

How to Fund your Small Business


The launch and maintenance of a small business requires a great deal of time, patience, and capital. Though many aspiring business owners have the first two qualities in abundance, the last asset is harder to secure. Fortunately, there is a great deal of advice and a range of funding options available for those who believe they have the knowledge and the skills necessary for commercial success.

Related: 3 Ways to Fund Your Franchise (and 3 Ways You Should Not)

Ethel Nyembe, Head of Small Enterprises at Standard Bank, says most, if not all, entrepreneurs rely on lenders to provide the capital they need to open and maintain a business. This money will be used to cover the start-up cost of the enterprise, and also the operating costs, because it may take several months before you start turning a profit.

Below are the different types of funding for entrepreneurs to consider: 

1. Khula

Khula, the government’s small business finance agency, offers what is known as a credit guarantee scheme. The scheme guarantees that the bank will be paid in the event that the business owner defaults on their obligation: up to 50% to 90% of the bank loan can be indemnified. The maximum amount that can be approved under the scheme is R3 million.

To qualify for a Khula-supported loan, you will need to invest some of your own capital or resources. This may be as much as 10% of the amount you want to borrow, and can be either cash or equipment. 

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2. Business Partners and Seda

Business Partners and the Small Enterprise and Development Agency (Seda) fund entrepreneurs, but they generally work with established businesses that want to expand.

One benefit you can derive from them, however, is the wealth of information contained on their websites (, ).

3. Buying a franchise

The cost of a franchise ranges from R50 000 to millions. Many organisations let you pay part of the franchise costs out of profits, but they still require a large deposit.

Not all franchises are equal, and there are some unscrupulous operators who are simply in the business of collecting franchise fees.

Before you sign on the dotted line, call some existing franchise holders and find out about the average turnover, working hours and if the franchisor is keeping up their end of the bargain. Your bank is a valuable resource in this area, as they have specialised teams to deal with franchise banking.

Related: Build your Business Legacy through Succession Planning

If you do decide to invest in a franchise, follow these basic rules:

  • Consider partnering with someone you trust and with whom you work well. Not only will this spread the risk, you’ll know the company is in good hands when you’re away.
  • Get a lawyer to look at the contract.
  • Ask the franchisor what the rules are if you want to sell your franchise to a third party.
  • Ask to see their training manuals. If they don’t exist, reconsider the deal.
  • Get a breakdown of the costs involved and proof that the concern is solvent.
  • If you are unsure of the quality of the deal being offered, call the Franchise Association of South Africa (FASA) on: 011 484 1285.

Business plans

A business plan is the cornerstone of a business. It articulates your objectives and focuses challenges and opportunities. With a business plan, you could possibly approach private investors. A good business plan is non-negotiable when approaching the bank for finance.

Back-up fund

You may have a great product or service, but it takes time to accumulate income. You should have at least six months’ worth of living expenses in the bank in addition to your start-up capital. If the first months are lean, at least you won’t be worrying about your regular expenses.

Plan to eliminate all of your short-term debt and a big part of your long-term debt. The less you are forced to take funds from the business, the more capital you will have to grow it.

If you are approached for funding

If you are approached for funding by a friend or family member, ask them for a business plan and about their financial situation. Ask a lot of questions and assess if they have the right skills for the venture.

Related: How to Build Skills, Loyalty and Profits With Staff Training

If you decide to lend money or invest for equity, you should:

  • Be able to afford the investment to the point where if the business failed, it would not compromise your financial future;
  • Draw up an official legal document stating what your role is; what their role is and their obligations to you, should the business fail or succeed.
  • Be prepared to lose your money; and
  • Be prepared to lose a friendship if you have not managed expectations on both sides of the transaction.

“Whether you are running a start-up or funding it, don’t be afraid to ask your business banker for help; they may have resources and ideas that can assist you in achieving your ambition,” says Nyembe. “While a nine-to-five job will give you security and a regular pay cheque, the rewards of being a business owner are worth the extra effort.”

Standard Bank
Standard Bank SA is the largest operating entity of Standard Bank Group, Africa’s largest bank by assets. Standard Bank SA provides the full spectrum of financial services, with more than 720 branches and over 7 100 ATMs. Independent surveys of customer satisfaction consistently place Standard Bank at or near the top of their rankings. The personal and business banking unit offers banking and other financial services to individuals and small-to-medium enterprises. For further information, go to

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