South Africa is known as a land of opportunity for aspiring entrepreneurs and many have great idea’s about starting and growing a new venture to become financially independent. However most of these idea’s require funding and small business loans are often needed to get the capital required to begin. Entrepreneurs should be aware that there are some wise steps to take before actually going ahead and applying for funds that can increase the chances of qualifying to borrow the necessary capital amount.
First of all let it be said that obtaining a small business loan from the bank these days is very difficult. The banks have had to tighten their belts on lending across the board since 2008 when the world’s finances began declining and the credit crunch that followed saw the major banks in SA such as ABSA, FNB, Nedbank and Standard Bank taking a lot more precautions on deciding who to lend money to.
In order to qualify for a small business loan and get funding from the bank an individual will require a clean credit history, usually a business that is already thriving and absolute proof that they will be able to repay the cash borrowed with interest in full and on time. Without that kind of security, the banks will not be prepared to offer any kind of business funding as they are interested in making money from the services and products that they offer and not interested in taking on another individual’s business risks.
Funding Options for Small Business
Whether you have a small business that has been in operation for sometime and need funds to take it to new levels or you are just starting out and have nothing but your idea’s, a business plan and a healthy dose of enthusiasm, there are alternatives to getting a business loan from the banks.
Many entrepreneurs start a business by charging costs to credit cards, not the most ideal because of the high interest rates associated with having to pay the money back but definitely an option for some. Others obtain loans to start up their business by borrowing from friends and family. This can be an attractive option for initial funding as the interest rates can be negotiated or even non existent if there is a wealthy friend or family member that believes in the vision and individual starting the new venture.
Failing the above options there are other ways to get money to start up a new business. Babysitting, renting out a room in an apartment or house, buying and selling second hand goods online are a few suggestions of how one can get cash in order to begin.
Alternative lending is a relatively new concept with masses of people chipping in together to form a sort of crowdfunding through websites on the Internet.
Franchise finance lenders can help individuals in South Africa who are interested in running their own franchise. Also, in this case the banks are actually more helpful with funding as they are familiar and more comfortable with the franchise system and the support from the franchisor means that the bank will be taking less of a risk in lending. If an individual already has a sum of money towards the total franchise investment but requires a small business loan to help out, the banks may be more willing to lend if the criteria is met by the applicant.
Business startup funding is a realistic challenge for many South African’s and microlenders have become more prominent in recent years. This too is an option although caution needs to be taken when applying for micro loans regarding inflated interest rates. Individuals need to be aware of loan sharks and small “shady” looking lenders that often employ scare tactics and unethical practices in situations where a borrower falls into difficulty and fails to meet agreed repayments. Common sense needs to be used when approaching any lending institute.
The sad reality is that most businesses fail within the first year or two making it a very high risk for not only the banks but any kind of lender to help out. Having said that, with some research and wisdom, existing and budding new entrepreneurs do have access to different types of small business loans and funding idea’s that can take the company to new heights or get the ball rolling for a new venture.