The hardest thing to do is to make your concept attractive to funders. The business idea might be excellent but if it isn’t attractive enough, funders won’t want to invest. If you have to raise more money than you have, you need to write a detailed business plan, find potential investors and do a lot more work.
If you’re looking for professional investment, you almost certainly won’t get that in three weeks (although there are some rare exceptions). You can still get your business going with the money you can get quickly so that you look that much more attractive to investors.
Banks offer traditional forms of funding such as overdrafts and loans. Other options include angel investors and venture capitalists who fund business privately. You may also be able to benefit from government loans.
Putting aside the cost of borrowing money, the complexity of lending arrangements and the inflexibility of banks and major lenders, the fact is that it’s almost impossible to get a business loan.
The credit squeeze is not a problem unique to South Africa. Research shows that as few as 3% of applicants worldwide are successful at securing a business loan. Funding institutions are inundated with applications. What makes your business a better bet than thousands of others?
Do you have a good credit record? Is your business plan appealing to an investor? Banks are risk averse, so they are unlikely to finance a start-up without collateral. They are far more likely to provide expansion capital for a business that has a healthy track record.
Banks do however provide credit cards, overdrafts and home loan advances which can give you access to finance. If you’re considering private equity or venture capital, you must have a solid business case and a venture that is in line the organisation’s investment strategy.
You will be required to demonstrate an ability to service the loan and associated fees and interest without subjecting your cash flow to undue stress.
Government funds are available through a variety of channels, all of which have to deliver on the mandate to advance black economic empowerment, women in business and job creation. How are you able to fulfil on these objectives?
Do not make the mistake of expecting to be given cash. You will need to have a comprehensive business plan that is in line with the institution’s criteria.
Do it yourself
If you are unable to secure finance, you’ll have bootstrap and use your own resources. You may also be able to borrow money from friends and family. Be warned though – this option is only suitable for non-capital intensive businesses.