Unless you’re one of the fortunate few entrepreneurs who started saving very young or were born into a healthy trust fund, sooner or later you’re going to need to raise funds to begin a business or to cash flow yourself out of a tight spot.
In this Blog we’ll look at some of the more common types of funding available to entrepreneurs and what the estimated pay out timelines look like?
The types of funds listed below are the more common ones generally available to entrepreneurs:
Own Funds – This is what funders call “skin in the game”. You backing your own venture, often says a lot about the faith you have in its potential. These funds are immediately available, but limited to what you can scrape from your bond or credit card.
Friends/Fools/ Family – This is generally the easiest and quickest form of funding to raise. The repayment periods are the most generous and interest is generally waivered. The downside however is it’s often limited to small sums of cash.
Invoice/Debtor Factoring – Cash Flow is generally the biggest issue facing SME’s, fortunately there are companies around that will advance you money on the strength of your debtor’s book and then only expect payment when these debtors settle their invoice. The set-up process is simple and funds are generally available within 48 hours.
Bank Overdraft – If your business account is in good standing with your bank getting approval for an overdraft should be a pretty painless exercise. The good news is it’s often available within 48 hours, the down side is it’s often limited to a percentage of the funds that pass through your business account.
Bank Loan – Strangely enough, after own or family/ friend’s funds, approaching banks is often the next stop for most entrepreneurs. Accessing these funds generally takes a lot longer to approve as there are several criteria that banks would like you to meet. The old adage of “prove you don’t need our money, before we lend to you” still seems to apply!
Governments Grants – Luckily there are several grant schemes available, the negatives are that the application process is often lengthy and generally requires that you contribute some form of funds in order to access the grant.
Angel Funds – Still in it’s infancy in South Africa, but if you’re pitching the right product, you may get lucky! Timelines to funding vary and access is often by invitation only.
Venture Capital – Although a well-known form of funding, you definitely need a winning product/concept before they will part with their time and money. If selected though, we warned the process is not a quick one as they will want to satisfy themselves that they have planned for every negative eventuality.
So, there you have it, as you can see there are several forms of funding entrepreneurs can access regardless of the stage their business is at. The trick though is to have all your information ready at a moment’s notice, because so often it is the entrepreneurs lack of preparation that stymies 90% of funding applications regardless of the source.
At Phezulu VBO we do more than just assist clients with raising funding, we are your “one stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.
For more information, please visit our website or give us a call on 010 003 8558