Finding funding opportunities is no longer as difficult thanks to publications like SME South Africa. In comparison, obtaining funding is still a problem in South Africa especially for small to medium-sized enterprises (SMEs).
Because most SMEs are informal (unregistered), the financing gap is estimated to be around 45-48% of all SMEs in South Africa. This emphasises that beyond access to funding, some SMEs are not meeting the requirements for funding.
To meet the requirements for funding opportunities, you need a checklist. You will use this checklist to ensure you have all the necessary information needed for your funding application.
In this article, we create a funding checklist for you. This checklist will serve as a guideline for your funding applications.
The 3 Ps of a Business Proposal
Before we can get into the checklist, we need to revisit the basics of business proposals. A good business proposal has within it the 3 Ps: problem statement, proposed solution and pricing information.
P1: Problem Statement
A successful business proposal needs to clearly outline and define the problem you are trying to solve with your business. The problem statement is vital because it showcases that you have a great understanding of the identified problem. This builds overall trust with investors because they will have greater belief in your expertise.
P2: Proposed Solution
The point of a business proposal is to offer a solution to the problem you have identified. The solution you provide should be highly detailed and address every need you have discovered.
P3: Pricing Information
For funders, the funding amount is vital in deciding whether or not they invest in a business. Your pricing will be dictated by the solutions you have provided. If your solution entails a short period, you will most likely get less funding than longer projects.
As part of your pricing information, you need to create a comprehensive budget. The budget should outline everything from raw materials and labour to technology integration costs.
Funding Checklist
Below is a checklist guideline for you to use and ensure your chances of success when applying for funding.
Remember, you need to register your business before you can think about applying for funding opportunities.
1. Create a Business Plan
Before you can send in your application, you need a business plan. Your business plan must outline your business model, objectives and financial projections. Also, include details on how the funding will be used and how and when the business will be able to meet its financial obligations.
2. Decide on Your Funding or Financing Needs
You need to calculate (down to the last cent) the exact amount of funding you need. Be precise about how the funding will be used. It could be for start-up costs, expansion, working capital or other purposes.
Do not write ‘I need R2 million’ on your proposal if it’s not accompanied by detailed forecasts as investors need to know where their money will be spent. Be reasonable and ensure that you calculate enough – not too little, and not too much.
3. Check your Credit Score
Check both your personal and business credit scores before applying for funding. A good credit score can drastically improve your chances of securing funding. Most funders will be interested in your credit score because it shows you are financially responsible.
4. Legal Structure of Your Business
You must make sure your business has the right legal structure. You should know your business structure by what you registered it as with the Companies and Intellectual Property Commission (CIPC). All funders will only approve your application if your business is registered.
5. Prepare ALL Financial Statements
Prepare all the financial statements including balance sheets, income statements and cash flow projections. Keep these statements up to date and accurate for when you need to apply for funding.
Depending on what type of funding you are looking for, sometimes a bank statement and Excel spreadsheets are acceptable. However, for funding opportunities such as venture capital, you need more detailed statements.
6. Collateral
In some cases, the funder will need you to have assets or collateral to secure the loan. This is typically seen in things like working capital loans or loans with large amounts. If you’re going to apply for these types of funding, you need to ensure you have some form of collateral before applying such as a car, house or equipment.
7. Craft a Compelling Business Pitch
You need to draft a really good business pitch/proposal. We mentioned above that a good business proposal has a problem statement, provided solution(s) and pricing information. If your business pitch does not touch on these points comprehensively, investors won’t buy into your business idea.
If you’re going to approach investors, venture capitalists or banks, you will also need a pitch presentation. This pitch must highlight your business’s potential for growth and profitability.
8. Make Sure You are Compliant
This is the most important tip. Make sure your business is compliant with all relevant South African laws and tax regulations. Being non-compliant can lead to your application getting rejected.
9. Ask for Advice
If you are unsure of any part of the application process, ask for help. You can speak to other business owners or to an investor who will give you advice on what to improve to ensure success.
Use these tips and optimise your funding application to ensure maximum success. Remember, you know your business better than anyone else and with that alone, you should be able to create a compelling application and get the funding you need.
To speak to an expert about funding, visit SME Advice for more information.
