Survey after survey shows cash flow problems as one of the biggest challenges facing South African (and global) entrepreneurs.
Most aspiring entrepreneurs say that they don’t have the capital they need to start their businesses, and blossoming businesses face the same challenge. No capital equals no growth. The good news is that there are so many ways to access capital to help you grow, from unlocking cash flow in your business to finding the right financing solution.
From traditional banks to alternative financing solutions, there are also a range of different products available to suit your needs.
Unlocking cash flow to fund yourself
- Bootstrap: This means to grow the business slowly, with lean business operations. The money comes from the work the business does, for example, when you bootstrap you may take pre-orders for your product, thereby using the funds generated from the orders to actually build and deliver the product itself.
- Customer Deposits: If you are in need of easy-to-access short-term working capital, one of the easiest options to raise funds is by asking your customers to pay a deposit. The deposit also provides you with a safety net when customers don’t pay.
- Supplier Finance: Supplier finance, simply put, means you get the stock you need now and only pay later, usually 30 days. This is a useful form of short term finance.
- Mortgage Loans: Some entrepreneurs use their home loans to finance their businesses. In doing this there are some risks and tax considerations, so make sure you do your research.
Financing your growth
If this isn’t possible, there is still hope. Globally, more and more financial institutions are offering alternative financing products for businesses. This is often easier to access than a traditional overdraft, term loan or credit card facility, because it uses other forms of security.
- Asset Finance: Using the assets within your business to borrow money or get a loan. The assets act as security for the lender. Asset financing is most often used when a borrower needs a short-term cash loan or working capital.
- Contract Finance: If you have a signed contract to deliver goods/services you can use that contract to obtain a loan to complete the work. The money must be used to complete said contract.
- Trade Finance: Also referred to as Inventory Finance, Import Finance or Stock Finance. In simple terms this means raising finance against the stock you are buying. The stock serves as security.
- Debtor Finance: A lender will ‘buy’ your unpaid invoices from you, effectively using the unpaid invoices as security for the borrowing. It is usually used to improve cash flow or working capital. In order for a lender to ‘buy’ the invoice, the work has to have been completed and the lender will charge a small percentage.
- Property Finance: When financing a property for your business, the function of the building will determine what type of lender you approach. If you intend to use the building for rental income, it would be considered a bigger risk than using it for your office space. In general property finance works like a term loan, only its duration is for a maximum of ten years.
- Point-of-sale Financing: If you are a retailer and use a credit card machine, then there are institutions who will provide you with a loan against the future inflow of credit card transactions. This is often an easy way to get capital and the repayments are a percentage of future sales — making it easier to repay.
If you own a good business, there’s no reason why you shouldn’t get financing. Perhaps traditional banks aren’t your solution, but know that there are other options out there. Some easier than others.