What Is A Start-Up Business Loan?
Start-up business loans in South Africa pertains to the funding a business needs to get it operating from scratch. Start-up business finance also includes funding for mortgage payments, taxes, rentals, and employee payrolls.
A start-up business funding can be used to purchase equipment, office furniture, software installations, and initial supplies and inventory stock items. The money can also be used to obtain permits and business licenses.
Debt Financing
Banks and other financial institutions can provide this type of start-up business loan in South Africa. Just like any other loan, the money borrowed must be repaid in installments plus interest. The repayment period can be short-term, medium-term, or long-term, depending on your agreement with the lender.
Although most creditors require some form of security to be presented in exchange for the loan, there are still some who can provide start-up business loans with no need for a collateral.
Angel Investment
Angel investors look for the next big thing from the pool of start-up companies that enter the industry. They’re willing to provide start-up businesses loans with no collateral by taking calculated risks in providing small amounts of money. They take part in funding companies in their early stages, expecting high returns within the next 5-10 years.
Angel investment is still a fairly new option for obtaining start-up business loans in South Africa. However, it’s starting to gain traction, especially with the rise of start-ups opening to help the economy overcome the financial obstacles it’s facing.
Venture Capital
This start-up business funding is often awarded to companies seen to have high growth potentials. Venture capitalists can provide seed funding or research funding that can catapult your business from the starting point. They can pour in large amounts of money if you win their confidence. With this, loan applications for start-up businesses are way tougher compared to other types of funding.
The fund provided by venture capitalists is an example of a start-up business loan offered without collateral. However, venture capitalists may require partial ownership rights to your business.
Crowdfunding
Although very popular in other countries, this form of start-up business funding is yet to draw attention in South Africa. This type of funding platform allows you to raise money with the help of people who sympathize with your campaign goals. In exchange for their contributions, you offer them your products or services.
Government Grants And Funding
The government of South Africa encourages people to put up their own businesses by offering start-up business loans and grants. They offer to fund those who are building their company from scratch and those who are established but are looking for extra money to expand their business.
How To Get Business Funding In South Africa
Even though various financial institutions are willing to grant anyone a loan, there are certain things that they watch out for to ascertain the eligibility of whom they are giving the loan. Therefore, the following are some of the things that you need to take note of.
1. Come up with a detailed business proposal Before you can be considered for a loan, the first thing that you need to do is to be detailed on what exactly you need the loan for. Do not expect that the lenders would figure that out for you. Also, when you are writing the proposal, you have to be explicit enough. Whether you are communicating your purpose in an interview session or through your proposal, ensure that you do not leave anything unclear.
2. Supply the necessary documents Take note of the documents that you are asked to present by your lenders. And of course, one of those is the registration document of your business organisation. The essence of those documents is to prove your reliability and genuineness so that they do not put their money into the wrong channel. So, if you have not registered your company yet, you can read up on how to register a small business in South Africa or you can make inquiries on how to go about it.
3. Get your credit score in perspective Bear in mind that before any financial institution considers anyone for a loan, one of the first things that they consider is the eligibility of the applicant. And one way through which they do this is by checking up the credit score of the applicant. So, on your part, you have to check out your credit reports and scores. Remember that the lower your credit score, the riskier it becomes to be considered for a loan.
4. Keep proper financial records It is excellent to have good financial statements as that is one of the things that these funding agencies would want to check, especially if you already have a business running. Your balance sheet, income statements, cash flow statements and others are usually considered to confirm your ability to repay whatever loan you get.
