Find the financing that suits you
Investment in South Africa is the same as in other countries especially with the first requirement for business financing: the plan of activities. No one will be able to get approved for funding without creating a workable business plan. It starts from here.
Your business plan must focus on what the company needs to grow and expand. For instance, would you like to put up more branches or add products to your existing line? Are you thinking of hiring more people, going online for e-commerce, or renovating your current offices? Why do you need funds?
Once you have established the reasons for your funds, then you can decide who to approach. For expansion plans, you will need an investor, partner, bank loan, or revolving credit line. For renovations, a business loan may work provided you can show the financial agent that you are earning enough to pay off the loan quickly. You may also be required to put something up as collateral.
Yes, there are angel investors in South Africa as well as from outside the country who are willing to fund special projects or businesses. The biggest problems they have to tackle are financial obstacles such as the high cost of living and the high unemployment rate in the country. The best way to find an angel investor is to go through Internet channels.
Expect angel investors to want to be involved in the start-up stages because this is the stage they find the most exciting apart from the earnings down the road.
Venture capitalists are different from angel investors in that they prefer investing in an established business. They come in and want to be part of top management and board room decisions. They also tend to spend larger amounts than angel investors and enjoy the studied risks involved in their investments.
An entrepreneur may want to start with an angel investor and once the business is proven to be successful, seek extra funding from venture capitalists, with or without the angel investor as a partner.
Since 2010, along with the plethora of repossessed properties appearing in the real estate market, it has been a bit harder to get approved for a business loan unless it is for an existing and thriving business. Many banks and financial agencies are being careful to study the proposal and application. They usually prefer approving loans to skilled people in business who have started their own business. Those who are planning a small loan to start a small business are better off applying with the local government DTI office.
A dangerous type of financing would be a personal loan because the interest rates are higher and terms may be more stringent. One can use a credit line or apply for a revolving credit. Another problem with a personal loan is that the funds are limited and this can be a death sentence for a business that needs large start-up capital. Any experienced business professional will tell you that limiting funds on a new business is a terrible idea because it will mean scrimping on aspects that have a direct effect on the firm. For instance, lack of sufficient funds means choosing between great packaging and buying something mass produced or limiting your marketing efforts because you don’t have sufficient funding to run a website.
These are your choices other than running to family and friends, and even if you do, you must treat it like a business loan or suffer the consequences of a troubled relationship.