Checklist
Find the right finance for your needs
What do you need funding for?
Have you critically evaluated all your options?
Can you unlock this capital in your business?
Have you approached or recognised lenders who fund this particular need?
Do you know what surety they will need for the finance?
Hundreds of entrepreneurs with growing businesses across the country need to access finance. Whether it’s for business expansion, to finance the purchase of additional assets, for working capital, to bridge cash flow needs or any other business growth imperative, the ability to secure appropriate funding, within the necessary timeframe, is critical for business success.
Ironically, while there is plenty of money available for SMEs in South Africa from a plethora of lenders, many entrepreneurs are still struggling to secure the vital capital they need.
Walking the talk
After 15 years of corporate employment in the Banking and ICT sector, I took the leap of faith from guaranteed income and all its associated perks to the exciting unknowns of entrepreneurship. Since that life changing day in 2001, I have successfully started and grown a number of businesses, but not without obstacles.
The recipe for success took time to refine. Since initially taking the plunge I’ve liquidated three times, been through business rescue once, lost my home and car and had to claw myself out of a number of financial holes, especially in the initial years.
I’ve learnt to accept that failure (as expensive and painful as it can be) is a part of the courageous journey to entrepreneurial success. I’d do it all again in a heartbeat rather than go back to the confines of corporate employment.
For me, the thrill of risking for the big win as well as the freedom and creativity associated with entrepreneurship far outweigh any of the downsides.
I understand the challenges of raising finance. Like most entrepreneurs, I relied on self-funding to bootstrap my start-ups, as well as loans from family and friends. These three sources of funding currently account for 94% of all start-up finance raised, with 85% of this being founder’s contributions.
Unfortunately, most entrepreneurs wanting to start a business are unaware that there are over 500 start-up funding offerings available to them. When it comes to options tailored for established and growing businesses there are currently over 300 finance offerings available.
These include options for asset finance for the purchase of equipment and machinery, contract finance, equity finance, import and export finance, invoice discounting and factoring, overdrafts, property finance, supplier finance and term loans.
Financing equipment, expansion and working capital
One of the key problems with access to finance is that valuable time and effort is wasted applying for finance that business owners don’t qualify for, or for offerings that don’t match their funding needs.
You need to be clear about what you actually need funding for, because there are different types of finance products and different types of lenders for each of the various funding needs.
Currently the top three reasons why established businesses apply for finance are:
To fund the purchase of equipment
To finance business expansion
To fund working capital.
There are over 70 offerings available to business owners to address the biggest financing need — funding the purchase of equipment.
There are three basic ways that loans for equipment finance are structured: Either by an instalment sales agreement, lease agreement or rental agreement. The type of finance structure you choose for equipment funding depends on the type of equipment you want to purchase and whether you want to own or just have access to it.
With equipment finance, the lifespan of the equipment impacts the terms of finance. For example, computers depreciate over a three-year period, so expect a shorter loan term. Like all lenders, those financing equipment are concerned about their risk, so they prefer to finance equipment that has a good resale value; this way they know that the asset can be sold to recover costs should your business be unable to repay its loan.
Managing collateral
When it comes to collateral, if the equipment you are buying can easily be re-sold to recoup outstanding monies, then the collateral requirement will be less than a loan request for a highly specialised piece of equipment. In these cases, the collateral requirement will be much higher to lessen the lender’s risk.
As far as qualifying for the finance is concerned, the lender will assess your business financials to ensure the business has a sound track record and that you can afford the repayments. They will also check that you have good credit records.
The lender will scrutinise your cash flow projections, including your future order book (i.e a record of all the sales that have been confirmed but will only be delivered in the future) to ensure that your business is sustainable and that their money will be repaid.
Find a lender that suits your needs
Be encouraged, there are hundreds of lenders and finance offerings available for growing businesses. You simply need to find the ones that fit your needs and do your part when it comes to being finance-ready.
Source: Entrepreneur Magazine SA
