Resourceful funding ideas for entrepreneurs

funding-vs-bootstrap

funding-vs-bootstrapOne of the biggest challenges entrepreneurs face is securing funding. For many entrepreneurs, the first port of call for capital is banks. But it’s important to remember that banks are not the only viable choice, especially if you have approached a bank and been turned down.

Here are your other options:

GOVERNMENT INSTITUTIONS

Government has a huge role in supporting and encouraging small to medium enterprises (SMEs) in the country. Not only are small businesses the biggest employers, thereby reducing unemployment, but small enterprises are set to be one of the biggest drivers of economic growth. There are various government institutions offering funding to help with small enterprises including: the Department of Trade and Industry’s (DTI) has the Black Business Supplier Development Programme (BBSDP), a cost-sharing grant offered to black-owned small enterprises, The National Youth Development Agency (NYDA) has a grant programme providing funding to formal and informal businesses. And the Small Enterprise Finance Agency (SEFA) offers loans ranging between R50 000 to a maximum of R5 million.

“Government has a big role in supporting and encouraging small to medium enterprises (SMEs) in the country”

Requirements: A good idea is not enough, there are still requirements that applicants need to meet depending on the institution, the most common requirements are: your business still needs to be commercially viable and needs to have a profit motive, meaning it should have a way to make money; the company will also need to have been registered for at least a year; and you as the business owner must be willing to join the business on a full time basis and be involved in its day to day running. There may also be various age and BEE compliance requirements depending on the institution; the NYDA for example only funds startup with a 51 % majority black share holding and 50 % of management positions being held by black people and only funds young people between the ages 18 and 35.

Documents you may be asked to produce (as provided by National Youth development Agency):

  • Tax clearance certificate
  • National identification card
  • Company registration documents
  • Your business/personal six months latest bank statements
  • Lease agreement of where you are doing your business
  • A loan breakdown of how much you need and what you need it for
  • Proof of residence
  • One year financial statement

INVESTMENT COMPANIES

Investment companies will only put money into businesses they believe have the best chance of achieving profitability and yielding large returns. In return, investors will look at long term capital gains, revenue sharing or they may treat the investment as loans or a combination of these.

Requirements: Investment companies will often have stricter requirements and will look at both the viability of the entrepreneur and the enterprise. Most investment companies will assess a startup on the contribution that the entrepreneur may be able to offer which means they will look at personal financials like: your personal income, this is to assess the levels of withdrawal you will need to make from the business; your balance sheet, security/collateral available to assess your guarantees.

Documents you may be asked to produce (as information provided by Business Partners Ltd):

  • A comprehensive business plan
  • Certified copies of company registration, identity documents
  • If you are buying a business, a copy of the purchase agreement
  • For an existing business, most recently signed annual financial statements, up-to-date management accounts – this includes a balance sheet, income statement with projections for the next 12 months
  • Cash-flow forecast
  • Bank statements for at least three months

BUSINESS INCUBATORS

Incubators don’t necessarily offer outright funding, but they do provide business support to startups like resources and services such as: physical space, coaching and networking connections and most importantly they can help you raise funding from their network of finance institutions. Some of the most common requirements, apart from a brilliant idea, are working for your business on a full time basis, a minimum trading period and BEE compliance. Depending on the incubator, they may also be a turnover requirement for your business. Although, requirements may vary among incubators. The Awethu Project, a Johannesburg based incubator, doesnt require a minimum level of education, business experience, or capital.

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