Four financing options for your new business
So, you’re thinking about starting your own business but you just don’t have the money. You’ve asked your friends and family to help you, but they’re also strapped for cash.
Don’t worry, just because you can’t find the finance you need to start your business from friends and family, doesn’t mean you need to give up on your dreams of being an entrepreneur.
Remember, when you’re looking for financing, it is important to partner with the right financial institution. Here are a few financing options that you can consider.
Find your finance at a reputable bank
Make sure the banks has a good reputation. The last thing you want to do is get involved with a dodgy money lender that charges ridiculous interest rates on business loans.
The best is to approach all the major banks in South Africa: ABSA, Nedbank, Standard Bank, FNB and Capitec. Make sure that you have a detailed business plan that shows your financial projections too.
Play open cards, show your income and expenses and reveal how much money you’ll need to pull as a salary, as well as your start-up costs and running costs for the first five years. Make sure the bank explains all the different business financing options so that you can make a decision that is right for your business.
Crowd funding – The most creative business finance solution
This is an exciting way to get finance for your business. Crowd funding is better suited for more creative businesses like art, music, design studios or clothing brands, or technical businesses, like new software.
The basic idea is that instead of getting the money you need from one source, you get small portions of the cash from many individuals. In exchange for the funding, you might give away equity (shares in your company), interest or product/services in exchange for the cash.
Crowd funding is a great way to find out if there is interest in your business idea. If many people are willing to support you in the beginning, chances are, you have a good product or service that will generate substantial business for a long time.
Angel investment – Get your money from kind hearted strangers
As strange as it may sound, there are wealthy professionals out there that are willing to finance start-up businesses. Best of all, they expect almost nothing in return. Most angel investors will give you the money you need in exchange for a small part of your business.
Some angel investors will leave you to manage and run your business, others may want to play a more active role in making important decisions, while others still may just want to be a business mentor.
If you decide to go with an angel investor, make sure that you have a watertight contract in place detailing the level of involvement from the investor. This will help you avoid future problems and arguments around finance and business ownership.
If you’re from a previously disadvantaged background, the government has set up a number of support structures for entrepreneurs.
The Department of Trade and Industry (DTI) offers financial support for a number of activities including manufacturing and market access. You can call the DTI on 0861 843 384.
Khula helps SMMEs to secure loans from banks. Call them on 0800 11 88 15.
Whatever finance option you decide to take with your business, make sure that you are 100% happy with the terms and conditions.
Making the wrong financial decision can leave you with major problems when the business starts growing. Remember, this is your business and it’s important that you keep control of it.