Figuring out which funding option is best for you can be confusing and time consuming. Below is a list of the most common ways you can source capital in South Africa.
1. Debt finance
When a company receives a loan and commits to pay back that loan with interest. The loan can be either secured or unsecured. Security is offered by means of collateral which the bank may use to satisfy the debt if the loan is not being paid back. Debt financing can be short term or long term and can be used to cover the business’ basic necessities as well as day to day needs such as rent, salaries and equipment. Many start-up companies use this type of financing which can be issues by a bank, a private company or family or friends. In order to secure such a loan, most institutions require a business plan. The business plan should indicate how much money you will need and what that money will be spent on as well as calculated predictions of budget, cash flow forecast, how the business will make money and the timeline thereof.
2. Venture Capitalists
Venture Capitalists, also known as Angel investors are wealthy professionals or entrepreneurs who use their own money to fund businesses. They fund businesses in exchange for equity in the company. This means that they would have ownership in your business and would likely want a say in major decisions. The investor may also wish to be active in the business by acting as a mentor to make sure that the business succeeds. These investors are usually interested in those businesses which have plans to expand or enter new markets. They are also interested in those businesses which will provide them with a high return on their investment.
3. Private equity
A private equity fund is a collective investment scheme is a company consisting of a few partners who raise capital themselves which they can use to invest. As with venture capitalists, they invest in businesses in order to acquire equity ownership in companies. They are usually interested in investing in big businesses, however smaller private equity firms interested in making smaller investments also exists. The process of securing private equity can be a time-consuming and difficult process. Private equity firms may be interested in your business if: you have contributed to your businesses using your own funds, have a business plan as well as the necessary experience and skills to successfully operate in your industry.
4. Government funds
South African government funding and grants are focused on providing funding for business ventures that can make a difference to the economy. Some agencies focus their efforts on certain groups such as women, youth and the previously disadvantaged, whereas others aim to support small businesses and yet others are industry specific assisting technological innovation or agriculture for example. A few of the agencies include the following:
National Empowerment Fund (NEF)
Department of Trade and Industry (DTI)
National Youth Development Agency (NYDA)
Isivande Women’s Fund
Small Enterprise Finance Agency (SEFA)
Technology Innovation Agency (TIA)
5. SETA’s
“SETA” stands for Sector Education and Training Authority which is an organisation that supports inclusive growth and development by providing vocational skills training. The members of a SETA include employers, trade unions, government departments and bargaining councils where relevant, from each industrial sector. One of the primary objectives of SETA is to collect money through skills levies paid by employers within each sector, in terms of the Skills Development Levies Act and then make that money available within the sector for education and training. This goes to employers, training bodies and to learners in the form of discretionary grants and bursaries.
6. Crowd Funding
Crowd funding is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Money can be received in different ways and for different reasons. Some people may choose to fund your project because they feel that they have a sense of civic and social responsibility to a worthy cause. Others may fund in return for receiving your product free of charge or at a reduced price. There are also the more traditional reasons and ways of crowdfunding where investors expect to get their money back with interest or by buying equity in the business. The last two work well because both sides gain if the business does well, and both lose if it doesn't.
Sourcing funds for your business can be overwhelming, but hopefully this list has pointed you in the right direction. Further research will help you determine which method of funding is right for you and your business. If you need any further help, do not hesitate to call us: 021 976 3303/ www.cournet.co.za/ Anansi Park, Durbanville, Cape Town
Also look out for the Durbanville Business Forum's Seminar on Funding Opportunities happening on the 6th of November 2015: durbanvillebusinessforum@gmail.com