Tips to get funding for your business idea
Learn more about what you need to know to get funding for your business idea in South Africa.
What tips could help you get funding for your business idea?
Unfortunately, many start-up companies fail in South Africa. Why’s that? It seems that the most common factor for this is cash or lack of it. According to the Seed Academy Startup Survey, over 80% of entrepreneurs and their own businesses, probably because they don’t know how to tap into funding.
Let's give you some first-hand experience from an entrepreneur about funding. So, we had a chat with Niel, a small business owner.
Read what Niel had to say about funding his business.
How did you fund your business idea?
"I didn't even consider getting outside funding to start my business. I didn't know where to start looking or how long it would take. Also, I doubted that I would be able to secure funding anyway.
"So, my business idea funded itself. I started my business as a side hustle and transitioned from my full-time job to my own business gradually without any external funding. I was lucky that I could do that."
Do you have tips for funding business ideas?
"Yes, I have a few tips based on what I know now, after running my business for four years:
"Do proper research - take a look at all of your options.
"Read the fine print. Know what you are getting yourself into before you go ahead.
"Think twice about deals that seem too good to be true - are they reputable? You are basically partnering with the company that is funding your business. So, make sure you are comfortable with that.
"Try family and friends but only if it can be done in a professional way. You don't want the drama that comes from a lack of boundaries or miscommunication.
"Try to avoid external funding if at all possible. Debt can sink businesses, so try to avoid it."
Niel gave us some great insights into the mind of an entrepreneur funding his business. He also confirmed that research survey's findings about self-funding entrepreneurs.
Are you looking for more info? Read on to find out more about how to fund your business idea.
Learn more tips where you could find funding for your business idea
Funds available to entrepreneurs
Money to a business is like water to a plant. Before funders are interested in you, they want to see how much you have managed so far. Entrepreneurs first look to family and friends for funding.
They can also approach more formal routes such as ‘Angel Funders’ and ‘Seed Investors’, where several people invest finance to start up a company which is in its first 2 years of life.
The entrepreneur then gives equity or partial control of the business so that he can provide a return on investment for his investors.
What about crowdfunding?
This is a novel, non-traditional way when many people on social media and the internet raise small finance for a small business. The entrepreneur applies for funding by setting up his profile on a crowdfunding website.
There are three types of crowdfunding. There is Donation/Reward Funding, and funders provide cash for the sake of the cause, not expecting any returns.
Next, with Debt Crowdfunding, you will have to pay back your debt with interest.
Lastly, with Equity Crowdfunding, funders invest in return for equity such as shares or part ownership of a business.
Institutions that fund development
Here's a list of possible institutes and their various facilities that you could approach to fund your business idea.
The Department of Trade and Industry (DTI)
The DTI wants to assist entrepreneurs, focusing on youth development, women, and broad-based black economic empowerment (B-BBEE). There’s lots of red tape to go through when applying for a Government loan or grant. With a grant, there’s interest payable, but not so with a loan.
You’ll have to follow all the criteria when applying. For example, if there are majority black ownership, minimum and maximum turnovers, the business must be one-year-old and compliant with all regulations. DTI provides a checklist for you to follow. Some of the grants offered by the DTI include:
Aquaculture Development and Enhancement Programme (ADEP).
Automotive Investment Scheme (AIS).
Black Business Supplier Development Programme (BBSDP).
Business Process Services (BPS).
Capital Projects Feasibility Programme (CPFP).
Critical Infrastructure Programme (CIP).
The Co-operative Incentive Scheme (CIS).
Incubation Support Programme (ISP).
The Manufacturing Competitive Enhancement Programme (MCEP).
Manufacturing Investment Programme (MIP).
National Youth Development Agency (NYDA).
People-carrier Automotive Investment Scheme (P-AIS).
The Sector-Specific Assistance Scheme (SSAS).
Support Programme for Industrial Innovation (SPII)
What will guide the entrepreneur is answering a list of questions provided. It will show him if his business qualifies or not. Examples are why you need funding, and does the business have enough staff and infrastructure? Loans provided by the FDTI include the Isivande Women’s Fund and Khula.
National Empowerment Fund (NEF)
The fund aims to support B-BBEE, namely, black-owned and black-empowered businesses at the startup phase. The NEF has four routes for funding, namely, the iMbewu Fund, the uMnotho Fund, the Rural and Community Development Fund, and the Strategic Projects Fund.
The Development Bank of South Africa (DBSA)
This fund is there to quicken the socio-economic development of the South African Development Community (SADC). Programmes provided by the DBSA are:
Project Preparation and Development Facility (PPDF).
Infrastructure Investment Programme for South Africa (IIPSA).
The Pan African Capacity Building Programme (PACBP)
Small Enterprise Finance Agency (SEFA)
This fund promotes micro, small, medium, and cooperative enterprises.
To apply for SEFA funding, the entrepreneur must complete a series of admin tasks, such as submitting an application form. Some SEFA funds include:
Identity Development Fund (IDF).
Anglo-Khula Mining Fund.
Enablis Acceleration Fund.
Khula Credit Indemnity Scheme.
Each fund has its own particular qualification criteria.
Industrial Development Corporation (IDC)
This Corporation was established to advance economic and industry development. They provide funding for sectors such as agro-processing and agriculture, and automotive and transport equipment.
The IDC makes the following funding available:
Agro-Processing Competitiveness Fund.
Product Process Development Scheme (PPD).
Risk Capital Facility Programme.
Transformation and Entrepreneurship Scheme.
Green Energy Efficiency Fund.
Women Entrepreneurial Fund.
The Manufacturing Competitiveness Enhancement Programme (MCEP).
Small Enterprise Development Agency (SEDA)
This agency belongs to the Department of Small Business Development and must implement the Government’s small business strategy, among others.
The Technology Innovation Agency (TIA or the Agency)
The purpose of the TIA is to stimulate and develop technological innovation to improve South African life. It covers sectors such as advanced manufacturing and agriculture. Funding criteria include clear evidence for innovation and sustainable competitiveness of any outcome or product.
The Jobs Fund
The fund is designed to co-fund projects conducted by public, private, and non-governmental organisations for the aim of job creation. An open competitive process makes funding available.
Public and Private Equity Funding
Most entrepreneurs are unable to go public. A more acceptable solution is the sale of private equity stock to some people who trust in the offering. The advantage is instant moolah and no debt, while extra expertise may join the venture. Criteria are there to enable the entrepreneur to decide if he should sell equity.
Venture Capital Funding
Venture capital relies on investment size and opportunity. The fund manages finance from investors looking for private equity in startups, and small- and medium-sized enterprises. The stage of a business in which a venture capitalist invests includes idea generation and growth. Several categories of venture capital firms in South Africa include:
Private venture capital partnerships.
Industrial venture capital pools.
Investment banking firms.
Individual private investors.
Banks support businesses that follow a well-tested approach to conducting business, such as franchises. But banks also are willing to fund startup businesses, such as those involving machinery and plants. When applying for a bank loan, consider the following:
Risk mitigation (banks do not like too much risk).
Cash flow (which a business needs to repay the loan).
Familiarity, understandability and verifiability (in short, can the bank trust for a successful business outcome?).
Some final tips for entrepreneurs looking to fund their business idea
Be conservative in your funding projections.
Be transparent with everything. Remember, investors could be hesitant to lend their money which they may never see again.
It would be best to convince them that your business venture is a safe investment and will succeed.
Do you want to know more about starting a business?
Read more info that you need to know about starting a small business in South Africa.
Yoco could also provide fast funding
You may be exhausted by now, having read all the above. But it’s important to know that if your small business needs a quick cash injection, Yoco could help you with Yoco Capital of you are a qualifying Yoco merchant. Access Yoco Capital by going via Yoco Portal and find out if you qualify. If you do, you’ll have the cash in your bank account quickly, in one business day. If you need more information, please get in touch.
You make it happen. You can make your future business a great success story.