Findings from our inaugural Pastel SME Business Survey tell us that the lack of funding for this sector of the economy is one of the top three barriers to business growth. In fact, one in every five respondents reported that they were either unable to, or unaware of how to, raise funding for their business.
But funding does exist; not only from banks but a range of other sources too. Here are a few suggestions on where to find capital.
1. Family and friends
The world over, family and friends remain the best source of finance for owner-managed businesses. Although this often requires dodging family politics and sweeping your pride under the carpet, it is worth it. Don't only think in terms of funds, the use of office space, a computer or an old warehouse are prime riches.
2. Suppliers
Many suppliers will help a new business by granting them a 30-day pay back account. This gives you the flexibility to assemble and sell a product in time to pay them back. However, they will ask you for surety in case your business cannot pay back the account, in which case you will have to pay them back personally. Generally this is still a good way to get finance and gives you the opportunity to forge great relationships with your suppliers, which will be a benefit further down the line.
3. Home loan
This is an easy way to obtain a large lump sum for your business but timing is critical. Before you can obtain a home loan you will have to prove to the bank that you are in a position to pay it back. Therefore it is best to apply for the loan while you are still earning a corporate of formal salary because when you start the business you’re not likely to be pocketing much. Alternatively get a spouse or family member to sign surety for you.
4. Credit cards
Credit cards provide perfect emergency finance for a business, but remember this is for emergencies only! A credit card works best only when you absolutely need it and you know you will be able to pay it back within the month. For example, if you urgently need extra stock to fulfill an order and you are guaranteed to receive payment for that order within the next 30 days, swipe the card. When your payment comes in you know that you can immediately pay back your credit and will still profit from your sale.
5. Renting and outsourcing
Renting as opposed to buying can be a tough decision. When buying equipment you have the advantage of efficiency and easy access but you will also have to pay the maintenance costs. If you only need to use that piece of equipment several times a year it may be more cost-effective to rent it.
Need a new assistant? Perhaps you are looking for someone to do extra data capturing or to answer telephone calls but hiring someone on a permanent basis as opposed to a temp is much more costly. Many services such as accounting and secretarial work can be outsourced to companies that specialise in that particular field. This is much more cost-effective than taking it on yourself.
6. Factoring
Still chasing those invoices? If you are waiting for a considerable amount of money from slow paying clients but need the money now, you may consider factoring. A factoring house is able to lend you the sum you need in return for a cut of your invoices. Some factoring houses may take over your debt collection entirely. It is advised to continuously weigh up the costs and benefits compared to your business size.
7. Work work work
We all know that running an owner-managed business will keep you constantly on your toes and many successful entrepreneurs will be working into the night, over the weekends and during holidays. When all else fails your own hard work may be the only source of "finance" you can get. Coming up with new ideas, following leads and making new deals can be a way to reel in the new business you need to cover your expenses but do not do this forever. Burning yourself out does not help your business in the long run and it is important to find a balance between the hard slog and living your life. Save your energy for those critical times.
8. Government programmes
The South African government has programmes aimed at helping small businesses gain access to finance. Guarantees, loans, investments and grants are all avenues through which the government can help you. This can be a slow and beauracratic process so prepare yourself and do the research – consider approaching the DTI, IDC, Business Partners or the host of smaller regional funders.
9. Investors
Going public with your business and selling shares is one way to obtain finance. But unless you buy back your shares one day, you will forever be paying this kind of finance back through dividends and ownership. The advantage is that investors may help you to take your business to a new level and they have substantial connections and expertise.
10. Back to the stone age
If all else fails; barter. As a small business owner you probably have particular services or expertise that you may trade in lieu of payment.
At the end of the day, if you’re looking for formal financing you need to make sure that you have the appropriate business management systems e.g. accounting and enterprise resource planning (ERP) software, that deliver the right kind of business analysis so that funders can make a proper assessment of the application for finance. Funding is certainly out there but it’s up to the entrepreneur to demonstrate that they want and deserve it.