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You need business finance – where do you start?

Article provided by FinFind

You’ve got your own business or are wanting to start a business and need to raise finance but are unsure of what funding options are available and what is needed to qualify for them. This is the situation that thousands of entrepreneurs across South Africa find themselves in.

“Access to business finance is a major challenge for entrepreneurs,” says Darlene Menzies, CEO of Finfind, “the high rate of rejected loan applications and the lack of knowledge about the available offerings are just two of many issues they face.”

“When it comes to applying for finance, a common mistake entrepreneurs make is where to start. Instead of doing some basic research about the various lenders and finance products available, they usually head for the lenders they know of, typically the commercial banks and government grants. In reality, the banks and government provide less than 10% of the total finance needs in the start-up and small business sector. While these lenders may land up being the right fit for you, if you want to avoid wasting valuable time and money running around applying for finance options you don’t qualify for then it’s important to start with a little research.”

As Abraham Lincoln said, if you give me six hours to chop down a tree I’d spend four hours sharpening the axe. It is important to do some prep, to ask yourself some key questions and to arm yourself with the relevant information.  Here are some tips on what to ask yourself and where to easily find the answers to help you secure a lender for your specific needs.

What do you need finance for?

Be clear about what you need finance for in order to determine which lenders you should be approaching. Just as there are different reasons for raising finance, there are equally many different types of lenders and different types of finance products to match these needs. There are specific products to finance the buying of equipment and machinery, for working capital, for completing a contract, expanding your business, buying a building for your business, to buy out a partner, to buy a franchise, for exporting or importing, for a business emergency among others.

Menzies says, “Data shows that the most common reason why entrepreneurs want to access finance is to start a business. The top three reasons why existing businesses apply for raising finance are to purchase equipment, to expand their businesses and for working capital. The good news is that there are more than 50 funds in South Africa for start-up finance and more than 70 funds available to fund the purchase of equipment.”

What are the different types of finance products?

Once you are clear about what you need finance for, you can familiarise yourself with the different types of finance products available. Some of the types of finance include asset finance, bootstrapping, contract finance, customer deposits, equity, export finance, import finance, invoice discounting and factoring, mortgage loans, overdrafts, property finance, supplier finance and term loans. Decide which products fit your need and then research all you can about them. Find out which lenders offer the products, and what you need to qualify for them.

Who are the lenders?

When it comes to start-up funding, surprisingly, or maybe not so to anyone who has tried to access finance, more than 60% of all capital raised comes from the entrepreneurs own savings or from loans from friends and family. If you are looking for money to start a business or money to grow your existing business, don’t discount the people you already know, your own network. If your idea or your business is worth backing the easiest place to raise finance is usually from people who already know you – they know how capable, hardworking and trustworthy you are.

There are a number of different types of lenders who provide finance to entrepreneurs. These include angel investors, venture capitalists (VCs), banks, debt financiers, niche lenders, corporate enterprise development (ED), suppliers, personal lenders and government among others. Read up about each of them – and find out who they typically fund, what products they offer, and what their lending criteria are –to help you decide who you should be approaching.

Who can help me answer these questions?

Thankfully for entrepreneurs, there is an easy-to-use website that provides the answers to your questions and best of all, it’s free. This revolutionary one-stop solution for access to finance for entrepreneurs is called Finfind.

Besides providing practical tips and information on finance, Finfind’s primary service is to auto match you with all the lenders and finance options in the country that meet your specific finance needs. You are simply required to answer some questions about you as the owner and about your business and Finfind does the matching and links you with the appropriate lenders.

Finfind has a large database of the all the lenders and finance products in South Africa that is kept up to date on a daily basis. Finfind is backed by the Department of Small Business Development.

FinFind is a proud Partner of the NSBC.