A few Methods of Financing Your Small Business
In South Africa’s current economic climate, running or starting a business can be very tough. However, securing finance is even tougher. When an economy reaches levels as low as 2009, everyone gets scared. Scared of spending, scared of investing and most of all, scared of granting credit.
Small businesses are the key drivers to South Africa’s GDP and currently employ an average of 60% of the country’s workforce. However, in order to hire, small businesses need capital and capital, can sometimes, be hard to come by. Below we have highlighted a few alternative ways in which small business owners can access finance.
You, you & you
Being a small business owner is really tough, and sometimes lonely. Unfortunately, there is no one to cry to when things get bumpy, the only way forward is to roll your sleeves and ‘make a plan’. Most entrepreneurs these days have come to the harsh reality that they will have to self-fund or “boot-strap” the business in the beginning until that can eventually become a catalyst for future fund raising. This is, by far, the best way to fund a business. This can either be done by personal savings, credit card debt, interest free loans to the business or even leveraging off other personal assets. If you truly believe in your business, you should feel comfortable investing your own money in your business. This will, in turn, make investors more comfortable in the future as they see that you have more “skin in the game”.
Friends, Family & Fools
Funding your business through friends and family is one of the most popular and effective methods of raising capital for your small business. Those that are closest to you not only believe in your business, but they believe in you and your ability to drive the business. There are a lot of benefits in raising capital through the “Three F’s”, such as quick access to cash, minimal due-diligence, cheap capital etc. but there are also a lot of downsides. One of the biggest downsides is potentially risking a personal relationship which has more value than tangible capital. Best advice is, if you going ahead and taking money from friends and family, make sure it is well structured, make sure everything is in writing, make sure they know exactly what the money is going to be used for and if it is a loan, then the duration and the repayment strategy. This might cause some legal fees to be incurred but it will be the best money you could spend.
Small Business Loans
We know what you’re thinking. Trying to get a loan from a bank is like trying to extract water from a stone. This could be true in most cases, but going via the banks is the best route possible because of the low interest rate. No one can compete with the banks in terms of pricing. The only shortfall that the banks have is their turnaround time. From past experience, receiving an answer from any South African bank can take anywhere from 4-6 weeks, and in most cases, it’s a no. Because of the long turnaround times and stringency of the banks, a new age gave rise to a few alternative lenders that decided to service this underserved segment of the market and provide them with quick access to cash with more ease. Fundrr has being able to provide small businesses all across South Africa with unsecured loans, anywhere from R20,000 to R500,000 for durations varying from 3 to 12 months at interest rates that are cheaper than the competition and at a turnaround time of 8 hours from application to funds in your account – apply here.
Now, there is a term that we learnt along our journey that has been incremental to us and is basically carved on our “ten commandments” here at Fundrr – and that is Social Capital. The dictionary definition of social capital is “the networks of relationships among people who live and work in a particular society, enabling that society to function effectively.” In Lehman’s terms this basically refers to your network. This network can bring a lot of positives to you in your every-day operations of your business but can bring tremendous value to you when you are seeking investors. First to get connected to HNWI (High Net Worth Individuals) and then to get other people to vouch for you when those HNWI start asking questions, which they will, at the end of the day they are giving you their hard earned cash as well as entering some sort of marriage with you. If you have a great idea or a good post revenue business and you either want to launch it or take it to the next level, bringing in an investor on board can really help the process. These angel investors can add value not only in nominal terms, but in advice, relationships, experience, networks as well as open many doors in the future.
Regardless of which path you decide to take, chances are that along your journey you will probably use all of these ways as your business grows. At day end, you have a business to run and that is your sole concentration point. You should do whatever is right for you and your business at that point in time and make sure you don’t lose sight of the goal.