General Info on Funding
There are many Entrepreneurs approaching banks everyday for start-up funding so the competition is fierce. Banks and funders are not willing to provide start-up loans unless you have a very good credit record and if you are able to make a reasonable contribution from your own resources.
Before you apply for a loan contact local credit bureaus to check your current credit status is good and that you have not been listed.
Why do lenders require collateral?
Most lenders require that the borrower puts in at least 10% of the capital required themselves, if not more, before a financial loan will be considered. Banks are risk averse – they will take as little of a risk as possible. This means that entrepreneurs need to have some collateral before applying to commercial banks for business finance.
Where to get money to start a business with no own contribution
One of the most common concerns for entrepreneurs is where and how to get funding. You must have a business plan. In the plan, you must consider all the costs and include your goals. Once you have done this, everything else will fall into place.
Where to Start
Getting money to start
Funding money to start any business is one of the most difficult things to do. In order to get going, so that you have something tangible to show potential investors, you may have to go the bootstrapping route. Start-ups that “bootstrap” arrange finance they need through small loans from friends and family, take a partner or seek an angel investor to provide start-up capital. Start-ups have to be innovative and can
- Apply for a micro loan
- Use savings to fund your business
- Keep your day job. You might be able to start your business by working on it during weekends and evenings
- Work part-time. Try shifting from full-time to part-time work when you start your business
- Ask your family for help so you don’t have to go to outside investors
- Approach an angel network
If you are looking for outside investors ask yourself
- How much is your start-up worth?
- How much capital do you really need?
- How much equity are you prepared to give up?
Once you have the business up and running, it will be easier to find funding from traditional institutions.
What if you don’t meet funding criteria of traditional lending institutions?
The traditional route to raise finance is through a bank or specialist funding agency, however, the reality is that many aspirant entrepreneurs don’t meet funding criteria and have to approach third parties to conclude equity funding deals. Follow these steps if you are borrowing from an equity partner or angel investor.
Protect your idea
If your idea is unique it is best to patent your idea. This way you will stop anyone copying it and you will also find out if it is truly unique. A patent grants you an ‘exclusive right’ so you can protect the concept. The South African Patents Act allows individuals to file their own provisional patent applications, but it’s advisable to seek the assistance of a patent attorney.
Sign a NDA
Ask the parties you are presenting to sign a Non-Disclosure Agreement (NDA’s) to protect the contents of your intellectual property such as the contents of your business plan from being divulged or infringed upon.
If you need to fund your enterprise by taking on an equity partner, conduct a background screening check before you do so. In order to request background screening or a credit report, written permission is required by the party under investigation.
These reports will inform you of any bankruptcy records, lawsuits and court judgments against a company or individual. Companies such as TransUnion, Kroll or Experian specialise in credit and screening reports.
With this information you will be able to make a better informed decision. They will also provide a risk profile of the party in question based on their history of servicing their debts.
Conduct a Reverse Due-Diligence
A due diligence is an information-gathering and assessment process whereby a prospective financer (or buyer) will look at all aspects of your business, from top to bottom. They’ll be checking the financials, profits, tax issues, projections, shareholders, staff issues, property and location, assets, debtors and creditors – all to determine how viable the business is and whether it is worth investing in.
Before getting into bed with an equity partner, compile a list of your own questions you need your own answers to. Make sure your timing is right on this one, asking for this information too early on in the negotiations could put be viewed as intrusive by the other party.
Many business ventures begin small; then grow with time, lots of hard work and patience.
Selling equity in a new “start up”
“Sweat equity” is the term usually given to the time and effort a cash-strapped entrepreneur puts into a business in order to earn his/her ownership share as opposed to contributing money for it.
It’s not a term that you usually associate with an employee. Employees are paid a salary for the work they put in – they generally don’t have any “equity” (ownership) rights in the company.
Certain business start-ups are suited to Bootstrapping
Certain businesses are well-suited to the bootstrapping model, because of their low overheads. Many people are held back from starting a business because they don’t have the money to get it going. Others get the business start up money through the “bootstrapping” route.
Bootstrapping means that you start a business out of very little or virtually nothing. Bootstrappers rely on personal income and savings, sweat equity, lowest possible operating costs and a cash-only approach to selling services.
Start-ups that “bootstrap” arrange finance they need through small loans from friends and family, take a partner or seek an angel investor to provide start-up capital. There are avenues you can look to in order to find finance; you just need to think out of the box.
How Spartan Has Geared Their Business To Help Fund Yours
Spartan doesn’t just fund entrepreneurial businesses, it is an entrepreneurial business. Kumaran Padayachee, CEO, Spartan reveals this is why his team understands SME financing needs and the unique challenges founder-led businesses face.
Historically speaking, entrepreneurs don’t typically have the quantity and quality of collateral needed to secure debt finance. It was this realisation that led Spartan to develop and deliver a solution that would help SMEs to grow their businesses, even though they didn’t always meet the criteria of more traditional lending institutions.
“We understand that many business owners don’t want to go the equity funding route, selling shares in their businesses in exchange for funding. Without the collateral needed to secure debt funding however, this is often the only route available to them,” says Spartan CEO, Kumaran Padayachee.
“We decided to approach things from a different angle. To service this sector, you need to be flexible. The same rules don’t apply as they do for corporates. To achieve this, we’ve assembled a team that really understands SMEs, their inner workings, the finance they need and the terms that will give them the best ROI for the funding they receive — after all, the point of funding is to help your business grow, so ultimately that’s what it needs to achieve.”
Spartan’s offers financing
At its core, Spartan finances small businesses (fast-growing companies with R5 million to R10 million annual turnovers) and medium businesses (R10 million to hundreds of million in annual turnover).
Related: Financing That Backs Entrepreneurs
Spartan finances specialised asset finance (tech, software, plant and machinery, office fit out and furniture); working capital finance (bridging finance, medium term loans); and growth finance (expansion, BEE deals, acquisitions).
Working capital in particular is a big portion of what Spartan assists its clients in. “This is project and growth-related finance, and many of the enquiries are for working capital, for which there is a huge need in the SME landscape.”
What finance suits your business?
As a debt funder, Spartan’s team carefully evaluates what the finance will be used for, and if the return is greater than the repayments — in other words, does finance make financial sense for the business?
“There are numerous ways that finance can be applied incorrectly by SMEs,” says Kumaran. “One of the first flags we look for is debtors age. If the industry norm is payment in 30 days, but a business is typically paid by its clients in 60 or 120 days, then we know there is something wrong with their internal processes.
Either the company is too shy to be assertive with clients, or it lacks the capacity or capability to invoice clients and collect cash. Either way, the result is a shortage of cash. Business owners in this situation apply for cash in order to be able to pay the bills, when they should be reviewing their business, pulling one or two levers, and improving their cash flows.”
Growing your business with alternative funding methods
On the other hand, there are many situations where working capital and bridging finance can help a business to grow beyond its own, organic abilities.
“A customer project or contract that requires a new product line or opening a new branch are both positive, expansionary situations. The problem is that there’s a lead time gap. You need to start the project, spend cash to hire people or purchase equipment, build internal capacity, deliver on the project and then the customer only pays you. Working capital and bridging finance allow the entrepreneur to do just that, and the company grows as a result.”
Bridging finance in particular is high risk and requires a large amount of flexibility, which is why more traditional funding institutions shy away from it. Spartan on the other hand offers revolving bridging loans to customers the team has worked with. “We understand this space, and our aim is to support the entrepreneurs within it,” Kumaran concludes.
Alternative finance solutions
Spartan is an Alternative Finance company that specialises in financing Small and Mid-sized businesses by providing: Growth Finance (structured finance for expansion); Specialised Asset Finance (equipment/machinery/technology/software/office fit-outs/energy/etc.) and Working Capital Finance (bridging finance & medium term loans).
Bridging Finance is available for one to three month terms and is ideal for contract or project-based businesses. It is a solution that assists businesses with solving cash flow issues due to growth-related challenges in their business and is either for a once-off need or for revolving business use.
Spartan is an Authorised Financial Services Provider 47631 and Registered Credit Provider NCRCP8669. e finance solutions.
What do I need to do in order to get a successful crowd funding campaign?
Advice on getting the gold you need for your crowd funding campaign.
I recently read through crowd funding and though this might be of benefit to me. What do I need to do in order to get a successful crowd funding campaign?
70 percent of most crowd funding campaigns never reach their funding laid out plan. If you only reach a portion of your desired pledge amount all donated funds are then returned to investors once your campaign date is up. Do your homework and make your campaign count.
To get the best out of your campaign, I would strongly advise you do the following:
- Lay out your plan way in advance
- Keep a proper and well-articulated business plan
- Create a compelling story.
- Use the social media and start a social media campaign
- Frequently promote your fundraiser, connect and interact
- Dish out rewards and incentives
- To go viral, go for educative, informative and entertaining videos
- Be more than unique and creative as more exposure will translate to more potential pledges
- Choose the right crowd funding site for you.
- Know and understand your end target audience
Where can I turn when banks are not helping?
Getting bank finance for my restaurant is almost impossible.
Getting bank finance for my restaurant is almost impossible. How else can I access the funding that I need?
Most small businesses will experience a cash flow challenge at some point during the next 12 months and raising capital from traditional banks is becoming a real challenge. Conservative lending policies and onerous application processes mean that finance applications can take up to twelve weeks or longer.
Banks require significant securities, which many business owners are unable to meet. In short, banks are making it very tough for small businesses.
The business cash advance
For businesses that accept credit or debit cards as a form of payment for their goods and services (termed merchants), the business cash advance is now available as alternative source of funding.
In simple terms, a business cash advance offers the merchant an upfront advance to buy a discounted amount of future business turnover. For example, you may be advanced R80,000 for R100,000 of future turnover, so the fees can be easily calculated as R20,000.
The payback is an agreed percentage of your turnover, paid daily until the full amount is paid across. Payback increases and drops with your business turnover and the smaller daily payments are often easier than monthly fixed instalments.
Quicker turn-around and more accessible
Comparing it to a bank loan, the business cash advance is more accessible, operates over a shorter term and requires no personal security. It is also much faster, typically available within two weeks.
The advance amount is based on historical credit and debit card sales and pay overs are daily. The costs are fully transparent and there are no penalties for late payments or extended payback. However, accessibility, flexibility and convenience come at higher cost than traditional bank lending products.
As with any financial product, it is important that the benefits gained from using the money are more than the costs, so it is important to have a good purpose for the funding and carefully consider the available options.
Over the last three years, the business cash advance has becoming more main-stream and this funding is used by business with a relatively high card turnover, such as restaurants, retailers, beauty salons, supermarkets, convenience stores etc.
What to use the advance for
The advance is typically used for a business opportunity, such as expansion, new stock, new equipment, marketing etc. Alternatively, it also offers through a difficult trading period or to cover an unexpected expense such as equipment failure when the money is needed quickly.
Small businesses are a vital part of the South African economy, contributing over 65% of South Africa’s employment and over 50% of GDP – accessing funding is imperative for these businesses to survive and grow.
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