Even seasoned business owners get to a phase where they need to scale up or expand their businesses. The same applies to novice entrepreneurs who have just started a business and now need business funding to get their ventures off the ground.
The process of acquiring capital keeps most up at night, worried about whether our business is ready to start applying for funding or not.
Depending on the type of business funding you are looking for (debt, equity or grant), the process in South Africa is generally lengthy, even more so for government funding or grants, though there are private financial institutions with shorter turnaround times.
Funding options that are mainly equity based such as venture capitalists, angel investors, or even crowdfunding have quicker turnaround times in comparison to debt or grant funding as these funders generally have a higher risk appetite in exchange for higher returns as part owners in your business.
You might ask “Which funding option is suitable for my business?” Each option has pros and cons, depending on whether you use debt, equity or a mixture of both. You need to consider factors such as taxation, the terms of funding, dilution of ownership, risk versus return and impact on cash flow in future.
The following website, FinFind, has various funding options to check and compare. Most importantly, I highly recommend consulting with your accountant and banker before making a decision about the funding option suitable for your type of operation.
Once you have made a decision on the funding option, you now need to think about the process of securing that bag – the application process. As a business owner with an idea, you need to convince owners of capital on the brilliance of your idea so they can invest in it.
This is where it gets tricky for most, but we have simplified the process for you: investors simply want assurance that you understand your business and its growth potential. For example: how will you make money (what product or service are you offering), where you will operate from and why – so location matters, knowledge of your working capital management (how frequently your business makes money – is it a cash or credit business?)
The following are common documents needed for funding which your accountant can assist you with to prepare for the application: current financial statements, financial projections for at least five years, a business plan (most important) in addition to your elevator pitch. An elevator pitch is the summary of your business plan that gives investors a high-level view of your business.
Due to the introduction of the Broad Based Black Economic Empowerment (B-BBEE) policy, investors and funders (especially for grants) may prefer to fund B-BBEE complaint companies, so it is imperative that you keep an up to date certificate or use the B-BBEE affidavit issued by the Department of Trade and Industry (DTI) for the application.
The B-BBEE affidavit only applies to entities that make less than R50 million turnover per annum; otherwise obtain an official B-BBEE certificate. Funders want the assurance that you have taken care of basics such as governance (Company returns, Department of Labour), and are compliant with South African Revenue Services for applicable taxes. In addition to this, funders require registration with applicable industry regulatory bodies, a registered trademark, patent or copyright of your product or solution.
If obtaining business funding is part of your business’ growth strategy, you need to plan ahead, ensure you have all the required documentation, submit your application on time and hope that your value proposition is good enough to draw interest from your potential funders.