Alternative methods of business funding are under estimated in value by many entrepreneurs. When most of us think of business funding, and start-up capital, we think of traditional bank loans, venture capital, business grants, or angel investors. If you are working with experienced business plan consultants, alternative methods of business funding that most people do not even realise are an option, and in this article, we look at what they are.
Entrepreneurship in South Africa is crucial in improving economic growth and development. With the unemployment rate in South Africa at 32% currently, many see entrepreneurship as key in addressing this. As the backbone of the economy, entrepreneurs play a crucial role in job creation, innovation, and community development. However, the journey of entrepreneurship is often fraught with financial challenges. Traditional sources of funding, such as bank loans and venture capital, may not always be accessible or suitable for every entrepreneur. This essay explores the compelling reasons why considering alternative sources of business funding is imperative for entrepreneurs in South Africa.
Diversification of Funding Streams:
Relying solely on conventional funding channels can be risky for entrepreneurs. Economic uncertainties, fluctuating interest rates, and stringent eligibility criteria from traditional lenders can hinder access to capital. Exploring alternative sources of funding provides entrepreneurs with a diverse range of options, reducing dependence on a single channel and mitigating financial vulnerabilities.
Inclusivity and Accessibility:
Alternative sources of business funding often exhibit a more inclusive approach, providing opportunities for entrepreneurs who may face challenges in accessing traditional financial services. This inclusivity is especially crucial in South Africa, where disparities in wealth distribution and historical economic imbalances persist. By embracing alternative funding options, entrepreneurs from diverse backgrounds can find avenues to kickstart and grow their businesses.
Encouraging Innovation and Creativity:
Alternative funding sources encourage entrepreneurs to think outside the box when seeking capital. Whether through crowdfunding, angel investors, or innovative financing models, these avenues often demand creative and unique approaches to attract support. This fosters an environment where entrepreneurs are motivated to innovate not only in their products or services but also in their business models and funding strategies.
Adaptability to Market Dynamics:
The business landscape is ever-changing, and entrepreneurs must be agile in responding to market dynamics. Alternative sources of funding can offer flexibility that may not be present in traditional financing. This adaptability allows entrepreneurs to tailor their funding structures according to the specific needs of their businesses, facilitating quick responses to market trends and emerging opportunities.
Mitigating the Impact of Economic Challenges:
South Africa, like any other economy, is subject to economic fluctuations and uncertainties. During economic downturns or periods of financial instability, traditional funding sources may become more stringent, exacerbating the financial strain on entrepreneurs. Exploring alternative sources provides a safety net, allowing entrepreneurs to navigate economic challenges with more resilience.
Community Empowerment and Social Impact:
Alternative funding sources often have a community-oriented focus, promoting social impact and community development. By engaging with these avenues, entrepreneurs can contribute to the empowerment of local communities, fostering a sense of shared responsibility and sustainable growth. This aligns with the broader goals of promoting economic inclusivity and reducing inequality within South Africa.
Alternative Methods of Business Funding – Microfinance
If you are only looking for a small amount of start-up capital, then microfinance may just be an option for your company. Micro lenders typically lend out smaller amounts than banks or traditional financiers, and while they do charge more interest, they are also more likely to offer finance to higher risk individuals.
If you do opt for microfinance as a method of business funding, minimise the interest costs by borrowing as little as possible to get your business started, and try to accelerate your repayments.
Alternative Methods of Business Funding – Starting a Service Business First
It is a fact that service businesses (like consultancies, independent contractors and others) require less business funding to start than manufacturers or retailers. Whatever your business field, look for opportunities in your industry to start a service business that you will use to build up the business capital you need to start your ‘real’ company. Offer consulting services to people or companies in your industry, or create a digital product, that you can sell to earn the capital you need.
Alternative Methods of Business Funding – Start In Parallel
Starting a business in parallel to your day job is probably one of the hardest things you can do. You will feel like you are working 24 hours a day (and some days, you might be.) However, it is possible to get a company started while you are still working, and earning a salary, and if you cannot find any other sort of business funding, then it might be an option.
Cut Costs
Another idea, if you are still planning your business, and looking for funding, while you are working in a salaried job, is to cut costs, and save the surplus to fund your business.
Most people can downgrade their car to a smaller, less flashy model, or rent a smaller home. You can also adjust your lifestyle, shop around for cheaper insurance, entertain at home, and look at other ways to cut costs. For many people, doing this can free up a significant amount of money over time, and if you are saving that money for your business, you should have at least some of your business funding by the time you are ready to launch.
Negotiate With Suppliers as an Alternative Methods of Business Funding
If you cannot find business funding in any other way, negotiating with your suppliers is always an option. If you can secure 30 or even 60 days credit with your suppliers, that’s like money in the bank. You will have time to sell those items, and make a profit, before you have to pay them for their products. In many cases, this kind of vendor financing is the quickest and easiest way to fund your start-up, and it can be a good idea even if you have some capital to work with!
Bootstrap
Bootstrapping is a term that describes small businesses that get start without any outside funding at all. It is tough, but it does mean that you get to maintain complete control of your company. Many companies that bootstrap early on also go on to gets business funding later on, but you will be in a much stronger position if you have already got a company that is working when you do.
New business finance is one of the hardest things in the world to get. However, there is no reason you cannot still start the business you have been dreaming about if you do not find the finance. Take a second look at your plan. Look for creative ways to finance your start-up yourself, and remember, where there is a will, there is always a way!
The significance of alternative sources of business funding for entrepreneurs in South Africa cannot be overstated. The diverse and dynamic nature of these funding options not only addresses the unique challenges faced by entrepreneurs but also contributes to the overall resilience and sustainability of the entrepreneurial ecosystem. Embracing a multipronged approach to funding is essential for fostering a thriving entrepreneurial landscape that drives economic growth and social development in South Africa.
