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5 Small Business Loan Ideas

So you want to start your own business but need a small business loan. Where do you look? Who can help?

Entrepreneur

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If you’re not in the position to self-fund your small business, here’s what you need to know about where to look and who you can approach for getting that much-needed small business loan.

1. Small business loans from government

The South African government is acutely aware that small businesses are integral to developing the economy and creating employment. As such, there are a number of initiatives for getting funding from the government. Whether you’re youth, women, previously disadvantaged, or involved in BEE, there’s government funding for you. Here’s a list of some:

The Small Enterprise Development Agency (SEDA)

SEDA has branches in each district municipality around the country.

It provides information, support and referrals for a range of activities such as tender applications, import and export training, trade information, business assessment, support and mentoring, technical support, market access and business linkages.

You can get more information from their site .

The Co-operatives Incentive Scheme (CIS)

CIS provides successful applicants with cash grants to allow their co-operatives to build quality services and suppliers to improve and grow their business.

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Cash grants are typically awarded to black-owned companies, initiatives helping overcome unemployment and poverty, and are registered co-operatives. More information is available at here.

2. Small business loans from banks

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Several of South Africa’s national banks are involved in encouraging and supporting entrepreneurial activity.

They’re able to provide initial start-up capital, working capital, short-, mid- and long-term lending, as well as business support.

Like government funding though, banks have conditions that need to be met before lending occurs in order to lessen their risk in financing your business.

  • Start by ensuring your house is in order. Make sure you have comprehensive records and documentation that shows your business has been profitable for a period of time, that your credit record is clean, and that you have collateral to borrow against.
  • Make sure you have a sound business plan that you have written and understand, complete with financial records and projections to discuss with the bank.
  • Have your financial statements ready, be able to detail how much money is needed and for what purpose, and foster a good track record with your bank before asking for a loan. If you’re in a good position to get a loan, shop around to see which bank can offer you the best loan terms.

Related: How To Find Funding in South Africa

3. Small business loans from family and friends

You may be in the position to ask family and friends for a loan, but be aware that while this may offer the most favourable loan terms and interest etc., it can come at a cost and can even seriously damage your relationships. Here’s what to pay attention to:

  • Family and friends are more likely to invest in you because they love you, not because they have faith in your business idea.
  • Loans create personal and emotional issues. If you borrow from a relative and aren’t able to repay it, it can cause feelings of guilt, embarrassment and resentment.
  • Be clear on giving versus loaning. While a friend or family member may say they’re “giving” you the money, they rarely mean it in the legal sense of a “gift”. Make sure you and the lender are absolutely clear on the terms and conditions of the loan to avoid future conflict over misunderstandings.
  • Debt can be better than equity. If you borrow money and pay back the loan with interest, it can be a better move than offering equity in the business in exchange for a loan – with debt, you’re still in control of the business.
  • Try align your loan payments to cash flow. Consider cash flow obligation rather than fixed repayment schedules. That way, when you can spare the money, you can repay.

Related: 4 Funding Sources

4. Small business loans from investors

business-investors

When looking for funding from investors, consider the kind of investor you want. An angel investor is someone with significant funds to spare that will offer you finance in exchange for a piece of the action.

They typically want equity in the business or a fixed percentage ROI, and want to be involved in the business’s growth – offering mentorship, support and advice with business decisions.

Loans from venture capitalists are quite different to angel investors. This kind of lender is looking for a high growth business typically in the tech industry, and will want to pull out with a handsome ROI after just a few years.

Related: 10 Tips for Finding Seed Funding

Venture capitalists expect to be involved in management decisions, are strict on their terms and conditions, and expect you to adhere to the business plan you presented to them.

5. Small business loans from crowd funding

A new form of lending in the last few years, crowd funding provides businesses with the opportunity to attract funding through attracting a number of micro-lenders to the cause.

Related: Kickstart Your Business Through Crowdfunding

A business will post a profile and business pitch on a crowd-funding platform like Kick-starter.

Business owners are able to negotiate terms and conditions of loans ranging from a percentage of interest, to more creative rewards such as the lender’s name on a menu item.

Funders can also decide how much they’re prepared to invest, be it as little as R100 right up to the full loan requirement. Visit www.kickstarter.com to see how other small businesses are getting funding.


Related: Government Funding and Grants for Small Businesses

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Small Business

The Rising Cost Of Small Business

Many of the hidden costs that tend to surprise small business owners are related to the employment of people. However, the silver lining is that there are ways to mitigate the risks associated with scaling a business and several tools available to streamline HR processes.

Jasmine Adam

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A small business starts with a visionary dream fueled by energy and grit. Founders build on that and attract a small team of people who can help breathe life into the business. But not very long after setting out on course, the harsh realisation of rising  costs like insurance, permits, licenses, equipment, maintenance, taxes, shrinkage and utilities suddenly appear.

Poor Labour Relations Management

Extensive labour laws in South Africa require dedicated overseeing and management, which generally lead to additional costs of employing labour consultants or hiring human resources managers that are not entirely relate to the core of your business. However, left unattended, labour relations issues can and will shut down your shop.

Labour relations issues cost South African companies R14 billion annually. Many companies have costly compensation orders from the CCMA due to Line Managers and HR employees not complying with legislation regarding disciplinary matters.

A surprising statistic from SEFA suggested that of the small businesses that fail, 40% of them can be attributed to poor labour relations management, therefore managing disciplinary processes by the book is critical. There are useful templates as well as step by step guides available online to help managers through disciplinary processes and to avoid incurring penalties from the CCMA.

Related: Government Funding And Grants For Small Businesses

Leave Liability

By law employees are entitled to at least 15 working days’ vacation leave in every leave cycle. Employers could face substantial penalties from the Department of Labour if they do not allow employees to take leave. Planning for peak and off peak periods in businesses is a critical part of drafting job specs and these conditions must be communicated to staff early on.

The cost of poor leave management will contribute to the company’s leave liability i.e. the amount of leave an employee is owed is noted as a liability in the general ledger.  Annual leave that employees do not take is a hidden expense for a business that if left unattended, will accrue and create cash flow problems for the business.

Employers are advised to make use of a leave management tool that enables both the employer as well as their employees to keep track of leave days owed to employees and brings some automation in to the process.

Absenteeism

The Basic Conditions of Employment Act ensures that all employees are “entitled” to a minimum of 30 days (for a 5 day workweek) and 36 days (for a 6 day workweek) paid sick leave.

Related: Small Business Funding In South Africa

According to Occupational Care South Africa (OCSA), absenteeism costs the South African economy around R12 -R16 billion per year. This equates to around 15% of employees being absent on any given day. The answer isn’t to go on a witch hunt throwing policy at employees and demanding doctor’s notes for even a few hours off work (employers are not allowed to breach medical confidentiality by requesting a diagnosis on a sick leave note).

Alternatively, employers can be proactive in managing absenteeism by monitoring leave reports monthly and quarterly taking regular health interventions (e.g. flu shots) before a peak sick leave season e.g. before winter. Maintaining a positive work environment where employees feel acknowledged and are encouraged to perform goes a long way in keep workers present and absenteeism on the low.

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Small Business

Is Unmanaged Stress Killing Off Our SMMEs?

Most SMMEs don’t make it past their first year. This is worrying for an economy in which SMMEs are a vital part of growth. A range of reasons are given for what is stifling these businesses, from financing to access to markets, but one factor has been completely overlooked: Stress.

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It is now widely understood that Small Medium and Micro Enterprises (SMMEs) are key to a country’s economic- and employment growth, but something is amiss in South Africa. Our SMMEs are just not doing what they should and understanding why this is – and fixing it – will be critical to the future success and sustainability of the economy.

The common conversations around SMME failure rates point at six main culprits: (1) access to funding, (2) access to markets, (3) infrastructure challenges, (4) scalability, (5) tough regulations, and (6) skills/education. The problem is that we have known about these for years, and for all the efforts to address them, we are unfortunately not seeing the growth in the sector that is needed.

A recent survey by the Small Business Institute (SBI) and the Small Business Project (SBP) put the number of formal SMMEs in South Africa currently at just 250,000. These numbers are alarmingly low – especially when compared with international benchmarks. SMMEs in Organisation for Economic Co-operation and Development (OECD) countries, make up 95% of businesses, and employ between 60%–70% of the working population, contributing up to 60% to GDP. In South Africa, while SMMEs make up 98% of the business population, they only employ 28% of the nation’s workforce, according to Chris Darroll, CEO of the SBP.

Related: Why Stress Can Actually Be Good For You

And yet the government continues to pin its hopes on the SMME sector. Initiatives like the DTI’s Invest SA and the South African Investment Conference this October, that claims to have attracted billions in foreign investment to the country, have foregrounded the role of SMMEs in economic revival. And the Government’s National Development Plan aims to have SMMEs contributing 90% of job growth by 2030. It is likely that more money will be channelled into support for the sector, to join the billions that have already been spent on incubators and initiatives to help small businesses.

This is a good thing, but it is not enough. The numbers speak for themselves. To date, none of these initiatives has borne much fruit and this signals that we may be overlooking something fundamental. Our collaborative research at the UCT Graduate School of Business suggests that what is being overlooked is something that most of us find difficult to define, or even talk about: Stress.

Stress is under-acknowledged by most people, personally and professionally, and for varied reasons. And this can have devastating effects. If ignored in business, the human devastation is likely to have larger scale effects on job loss, workforce disengagement, health-related days off, impaired teamwork, sub-optimal decision-making, lowering of productivity, and ultimately fuelling a declining economy.

While access to finance and markets, infrastructure and scalability challenges, tough regulations, and not enough educated and skilled employees are all valid hurdles tripping up SMMEs, the fact is that they are perfectly normal hurdles to have in a competitive, emerging economy. Our research reveals that good leaders, who are able to get their businesses over each encountered hurdle, are also able to manage their personal negative stress and harness their positive stress.

Related: A Brain Surgeon’s Tips For Handling Stress Head-On

Stress can, generally, be quite motivating, however it is generally accepted that there are three kinds of stress: (1) positive stress, which is chosen and does not last very long (like writing an exam), (2) tolerable stress, which is unexpected and lasts a little longer, but then stops and there is time to process, and (3) toxic stress or distress. Toxic stress is tolerable stress left to run on and on without end, without rest and without time for healing and processing. It is this third and debilitating kind of stress that business leaders are likely to experience, and in SMMEs it can be even more severe.

Our research suggests that SMME owners tend to set very high, and often lofty, goals for themselves when setting up their SMMEs. And then they are constantly feeling stretched in either striving for these goals or ‘maintaining the course’. This can mean maintaining good business results, maintaining the customer base, where often 20% of the customer base accounts for 80% of the revenue, maintaining employment levels in changing political and economic conditions, maintaining pricing when squeezed for ever-lower prices while delivering good quality products and services, having their integrity challenged, and dealing with clients/customers who are not averse to replacing their products/services.

Another cause of stress for SMME business owners is that they mostly have internal loci of control, meaning that they take personal responsibility for outcomes and results and therefore blame themselves for every failure, and find it difficult to forgive themselves for deviations from intended results. In addition, an innate sense of accountability to their staff and their staffs’ families reportedly weighs heavily on business owners. Many feel similar accountability toward the broader stakeholder groups that their businesses serve.

All of these factors, which many argue are innate to the nature of business, place undue, long-term pressure (toxic stress/distress) on the cognitive, emotional, psychological and spiritual resources of individual business owners. This reportedly leads to drops in productive activity and motivation, withdrawal from relationships both personal and professional, low energy, impaired decision-making and ill health. And it also destroys resilience – leaving business leaders unable to ‘bounce back’ from personal- or business-setbacks, which is part and parcel of life and business. With a debilitated leader, the business is almost always likely to suffer, on a day-to-day basis and also in the long run. Like a virus, stress transfers to others.

An SMME’s success is inextricably linked to having an effective leader. And effective leadership is inextricably linked to effective stress management and self-care. It stands to reason, therefore, that improving the way SMME business owners manage their stress and boundaries could have a significant impact on improving business survival rates.

Related: Is Your Business Prepared For The Worst? How You Can Stress-Test Your Business

Along with offering business advice, funding incubators, opening up markets, attracting foreign investors, educating consumers, subsidising and improving infrastructure, the government should be looking at ways to encourage stress management and self-care into the daily operations of small to medium-sized businesses.

We need to get business owners educated about stress and self-care: about how exercise, sleep, diet, meditation, life-balance, self-forgiveness, and other-forgiveness affect them, their staff and their businesses. Effective self-care, of which stress management is a part, will enable business owners to courageously stay resilient in the ongoing stressful situations they will naturally encounter. This may, in turn, help to turn the tide in South Africa’s SMME sector so that it can drive the country’s economic revival like everyone hopes it will.

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Company Posts

Many SMEs Start With Great Plans But Fail To Take The Big Leap

Most small-to-medium sized enterprises (SMEs) are aware of the benefits of good governance practice but, faced with limited time and resources, which could be costly in supporting growth ambitions.

ACCA

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  • 27% of SMEs don’t have a vision that covers more than the next 12 months
  • 45% of SMEs either don’t have a strategy, or one which covers only the next 12 months or less. 

The latest global research, inclusive of Africa in supporting small business growth from ACCA, outlines the governance needs of SMEs. It highlights simple but effective practice over vision, strategy and human capital can provide them with greater flexibility, adaptability and resilience as they grow. This a huge factor in the long-term sustainability of the business, if put in practise.

“If you incorporate good practice for running your business from an early stage, your company is more likely to be resilient and is more likely to appeal to external investment,” explains Jo Iwasaki, head of corporate governance at ACCA. It is about leadership directing the company and being aware of factors both within and beyond their enterprise and build resilient organisations in the face pf the changing world.

Related: Growing Globally – Supporting SMEs On The International Stage

The research also found that half (49%) of SMEs do not involve anyone external in their strategy discussions, despite the benefits experienced by those that do, which include additional experience and knowledge of the industry/sector (according to 46%), an independent perspective / constructive criticism (44%) and advice on their growth strategy (39%).

“There are a lot of daily concerns for the leaders of a small business, and often the biggest challenge is meeting day-to-day operations and cash management needs while thinking about the long-term future of the company. And while many leaders are keenly aware of the importance of resilience in the rapidly changing business environment and of buy-in from stakeholders, for example funders and employees, there often may not be the time to think or do much about it,” added Iwasaki.

“I hope that this research helps SMEs in focusing on some of the most crucial issues, and can be a resource not just to SMEs themselves but also to policymakers,” concluded Iwasaki.

How vision and strategy helps small business succeed is available at ACCA Global.

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