One of the biggest initial challenges of starting a business is gaining funding. You need capital to get your business off the ground, but finding this capital can be tricky – especially when all you have is a business plan. If you’re looking for business funding as a new entrepreneur, here are the four main options available in South Africa.
Loan Financing
Loans are one of the most popular financing options for anyone starting a new business. A loan is a form of credit, where you borrow money and pay it back with interest over time. The advantage of taking out a loan is that the lender does not gain any stake in the business. Two main types of loans exist – personal loans and business loans. Loan financing is available through all major banks, as well as smaller alternative funders. You might even take out a loan from friends or family.
Government Grant Funding
Accessing a government grant is one of the most attractive options for business funding, as grants do not have to be repaid. However, there’s a lot that goes into applying for a government grant, and not all entrepreneurs are successful.
You will only be eligible for a government grant if your business plan aligns with the specific project or initiatives of the government funding scheme. Different government departments or agencies have their guidelines and initiatives for grants. You’ll also need to make sure you can produce all of the required paperwork.
The good news is that there is quite a wide range of grant funding schemes available to South African entrepreneurs. It’s also possible to access grant funding from foundations and non-profits in South Africa. For example, MTN has the MTN Business program to invest in SME growth.
Equity Funding
Equity funding is when an investor supplies a loan and takes a percentage of business ownership in return. There are no monthly repayments or interest payments required for the loan, but the investor takes a share of the business’s profits. Beyond making dividends, investors can sell their shares in the company to make back the money on their investment. This could be sold to the founder of the business or other investors.
Angel Investment Funding
Angel investors are people who believe in your business and want to help it grow – they are not looking to make a profit from your business. These are typically friends and family, or business mentors. Angel investors often also offer their skills and expertise to help the business grow. Gaining angel investment funding comes down to your network and what connections you have access to.
It’s important to understand the pros and cons of each different funding type, as this can seriously impact the development and growth of your business. Always try to explore your different funding options before making a decision.
Luckily, there is quite a wide range of funding options available in SA. The type you choose plays a big role in how you launch and develop your business.
Read Also: SA Government Funding Initiatives for SMEs
