So you have a brilliant idea for a new business, or perhaps a spark of ingenuity on how you can expand your current business? Do you need to buy new equipment or take on more staff? One of the biggest obstacles business owners face is securing enough funding to make their dreams a reality. Let’s talk about the different avenues you can explore to fund your startup or expand your business!
Business Fuel
Bright on Capital
UBank
Vodacom Business
First National Bank
Pollen Finance
Standard Bank
Merchant Capital
Bridgement
Lulalend
When solving any business-related problem, you have to consider so many nuances that are specific to your situation. If you’re just trying to ease cash flow or need more working capital, you can consider a business credit card or overdraft account instead of a traditional loan. You are likely to come across two types of loans: terms loans and revolving loans. Term loans are paid in regular instalments and have longer fixed repayment periods. Revolving loans allow you to withdraw funds up to an approved credit limit. You can borrow more money after repaying the initial debt. There are also loans that are specific to industry and usage such as agricultural sector loans and asset finance. Asset finance can be useful if all your business needs are new equipment or an additional vehicle.
To make things easier and to determine how much funding your small business needs, it’s important to sit down and come up with a comprehensive business plan. This can include defining your business’s goals, creating objectives to reach your goals, time frames for each of these objectives, a SWOT analysis, market and competitor research, contingency plans, financial projections, and an executive summary.
Most major South African banks such as Standard Bank, Absa, Nedbank, and FNB offer loans to small businesses.
Standard Bank offers a number of business loans that have personalised interest rates, repayment plans and specific perks. For example, their Fixed Repayments Business Loan has a repayment schedule of 36 to 120 months and a personalised interest rate. They also offer specific loans for businesses in the agricultural sector and short term, flexible loans like the BizFlex: Short-term business loan.
Absa also has a few options to choose from when it comes to business funding, such as their business term loan, business revolving loan, overdraft and business card services, and franchising aid services. They offer tailored solutions for majority black-owned agricultural and women-led businesses.
Nedbank offers loans to businesses that have a maximum annual turnover of R30 million. There are specific loans for asset finance and unsecured lending. Additionally, there are financing options for those in the agricultural and medical industry and those looking to franchise, especially restaurants, fuel stations and retail stores.
FNB seems to have less of a specific approach, offering business loans from R2 000 with repayment plans ranging from 3 months to 5 years. On the upside, they do offer set interest rates which is a great option for longer-term loans.
Getting a business loan from one of South Africa’s major banks is not the only option, but there are alternate institutions. Financial institutions like Merchant Capital, Lulalend, Betterbanc and Fundrr can also be good business funding options.
Alternate financial institutions can offer more short-term business loans and asset finance. For example, Lulalend offers 6 to 12-month repayment plans and a low-interest rate. These types of loans can give your small business needs a quick cash injection to improve your working capital situation or make short-term changes. They are also more flexible in terms of repayment schedules and are generally more tailored solutions to your specific problem.
Any reputable lender will ensure that you can afford to repay your loan. This means that you will likely need to submit financial statements for your lender if you qualify for a loan and the maximum value you can borrow. You will likely have to be in good standing for your application to be considered.
In addition to having your paperwork in order, you may need to provide surety to the bank. Surety or collateral can be in the form of personal or business property, assets etc. Absa is one of the banks which requires surety for its term and revolving business loans. FNB only requires surety if you are going to borrow an amount greater than R400 000. Another thing to keep in mind is that banks, for example, FNB, can require you to be an existing customer or to switch over to their bank, such as Absa.
Depending on the loan you’ve decided on, the application process can differ. For example, currently, Standard Bank and Absa require that you contact a banker to begin an application. FNB and Nedbank have the option of applying online.
For non-traditional lenders like Merchant Captial and Lulalend, as well as crowdfunding platforms like Jumpstarter, you can simply apply online. This is usually easier and the approval process may even be faster than a traditional bank loan.
Whilst you can gather some information online, it is recommended that you get in touch with your local bank to confirm the requirements and application process. You don’t want to make decisions based on information that you may have misinterpreted or that could possibly be outdated. Your banker will be able to guide you towards more financial services that you qualify for, and that may better suit your business.
As the name suggests, crowdfunding involves collecting money from a large group of people to fund your business. People who contribute to funding usually do not gain any form of ownership but may expect some kind of reward. This reward could be in the form of a free product, special discounts, unique experiences etc. Be sure to check the terms and conditions of any crowdfunding agreement to see exactly what is expected of you!
By involving the general public you can get a better sense of how well your business might do on the market. How do people react to your business idea? Can their suggestions improve your business plan? However, one downside of crowdfunding is that it may take a while to get a substantial amount of money. You may have made many appeals to the public before your campaign gains traction.
There are many platforms in South Africa that can help you to crowdfund such as Jumpstarter, Livestock Wealth, Angel Investment Network and Thundafund.
Depending on your business plan and how much money you need to get off the ground, you could simply fund your business by yourself. This can mean tapping into your savings, investments, cashing out retirement funds, or borrowing money from family and friends.
Putting your hard-earned cash into a business can be scary. What if it all goes up in smoke? Be sure to consult with your financial institution or advisor before withdrawing any funds. But with high risk comes high reward. You have full reign over the business decisions and there isn’t the added pressure of having to answer to investors.
It can be difficult to find willing investors who share your goals and see your vision for the company. At the same time, your investors might have foresight of the industry, and a strong network that you can utilize to break into your chosen industry. They can provide your small business with so much more than a business loan.
You have to prove that investing in your small business is worth the risk. Investors usually want to involve themselves in a business that they believe has high growth potential. Because this is more than just a business loan, your investors' involvement in the business can be indefinitely long. Likely maintaining a role on the board of directors, your investors will have a strong say in the running of your business. They will have some form of ownership over your business and you will have to provide a form of financial return, for example, dividends on shares.
There’s no one size fits all answer when it comes to procuring a business loan. Start off by drawing up a comprehensive business plan, critically assessing your business needs, and then exploring your options. Depending on your industry, certain loan programs might be more beneficial to you. Be sure to ask your banker about all your possible funding options and compare interest rates and loan terms from a few financial institutions before making a decision.
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