How to get funding
The transport business has a ‘low barrier to entry’ at the bottom of the market, meaning that anyone with a ‘bakkie’ or a minibus can start offering transport services. This results in a flood of competition at the bottom end of the market.
In many instances, the entrepreneur starts a business with little to no capital, relying instead on revenue derived from the business to cover all overheads from day one. This lack of capital curtails marketing activities that may result in increased income.
Where to go for finance when starting a transport and logistics business
- Commercial Banks. Commercial banks will finance vehicles used in the transport industry. Before you approach the bank for funding you must be able to show the bank that you have the necessary expertise to run a business by producing a well constructed business plan. You will need security (personal surety and or assets) to cover the loan amount that you need.
- Khula Start-up Fund. Khula Start-up Fund has been created to empower South Africa’s historically disadvantaged entrepreneurs to establish new enterprises. Individual solutions are structured after having assessed the potential return of the venture and level of risk. Loans are repaid over a 5-8 year period SME’s can apply for finance between R150 000 to R3 million.
- IDC Metal, Transport and Machinery Fund. The Industrial Development Corporation assists entrepreneurs to finance vehicles, components and accessories as well as diverse transport products such as boats, planes and trains. Repayment is usually made over 5-10 years depending on the risk profile.
It’s all in the approach
Getting funding is one of the most difficult things for any start-up to achieve. If a business owner walks into a bank and asks to loan two million to start a transport business, the chances are very good that the response will be a negative one.
Protect your credit record
If you do not have a good credit record, no one will want to loan money to start a business, especially commercial banks.
It is very important to communicate regularly with your bank, and service your accounts responsibly.
By having a good credit profile, you are over the first hurdle.
Find out what documents the bank needs
Contact the bank and find out what information the bank will require before applying for a loan. It always makes a good impression when you are organised.
Show the bank you have the expertise
Before approaching a bank, you must be able to show them that you have the necessary expertise to run a business by producing a well-constructed business plan.
Security is required
You will need security (personal surety and or assets) to cover the loan amount that you need. It is important to show the bank realistic cash flow projections and balance sheets for two to three years.
Understand how banks operate
Create a careful breakdown of what finance you need, vehicles, start-up capital etc. Banks are usually departmentalised.
For example, Standard Bank Vehicle and Asset finance division has a team of transport specialists who can advise you on the most suitable finance options with regard to buying vehicles, but they won’t be able to help you with regard to start-up capital.
You should have collateral
In order to borrow, privately or through commercial banks you must have collateral. South Africa’s big four banks offer the standard range of credit – overdrafts, revolving credit, term loans, business mortgages, vehicle and asset finance, property finance, and debtor finance.
So if you want a loan of R100 000, you have a R10 000 deposit the bank many grant you a R100 000 loan if it considers you a good risk. Collateral can be in the form of a property, an insurance policy, someone standing surety, or a combination of these.
Rather seek finance in isolation
Once you have the vehicle finance, approved approach the banks Small Business Division for Start-Up capital. By seeking finance in isolation (department by department), it’s much easier to get approval.
If you have, though the help of your mentor, secured a contract to transport goods, this too, will make it much easier to get finance, especially if vehicle finance has already been approved.
Consider government funding
There are a variety of Government Funds that have been created to empower South Africa’s historically disadvantaged entrepreneurs to establish new enterprises. Individual solutions are structured after having assessed the potential return of the venture and level of risk.
A partner could be the solution
If you do not have a deposit and cannot get approval for financing, consider taking a partner who may be able provide the necessary deposit.
If you are unable to get funding, consider renting instead of purchasing a vehicle and begin your business on a modest scale.