How to get business funding in South Africa

Start with what the money is for

The purpose decides the route more than the amount does. Working capital to bridge a cash-flow gap, equipment, a property or an expansion, a first raise for a product that is not yet profitable, and a buyout or exit are all financed differently. Funders read the purpose first: a lender wants to see how it is repaid, an investor wants to see how it grows, and an agency wants to see the outcome it exists to advance. Write your purpose in one sentence, with the amount and the date you need it.

The main routes, and who each one suits

• Banks and lenders. Suit businesses with cash flow, a track record, clean records and security. Cheapest when you qualify, least flexible when you do not. Business loans compared sets out the options.
• Government and development agencies. SEDFA (small-business loans, plus the grant and voucher programmes it inherited from SEDA), the NEF, the NYDA for youth-owned businesses, and the IDC for larger industrial projects. They are mandate-driven: often longer or cheaper, but slower and focused on outcomes such as jobs and ownership. See SEDFA, the NEF, the NYDA and the IDC.
• Grants and vouchers. Not repaid, but tied to conditions and specific spend, and small relative to most needs. Grant and government funding covers them.
• Trade, invoice and purchase-order finance. Funds a specific transaction against a customer’s order or invoice, which can work when you lack security. See trade finance and purchase-order funding.
• Equity: angels, venture capital and growth capital. No repayment, but you give up ownership, so it suits businesses that can grow fast enough to justify it. See venture capital, seed funding and growth capital.
• Bridging finance. Short-term money against a defined event, such as a sale or a payment due. See bridging finance.

Most businesses use more than one over time. Small business funding maps the routes by how accessible they are for owner-managed businesses.

Step 1: Get your numbers and records in order

A funder cannot approve what it cannot verify. Have current management accounts or annual financial statements, recent bank statements, proof that your tax affairs are in order, company registration and ownership documents, and a cash-flow forecast you can defend line by line. Gaps here are the most common reason a fundable business is declined, and they are entirely fixable before you apply.

Step 2: Size the request to the business

Asking for too much is the familiar mistake, but asking for too little is common too, and it leaves the business short of cash again in a few months. Size the request to the purpose, and to what the business can either repay or grow into. A request that is easy to justify in one paragraph is usually a well-sized one.

Step 3: Match the route, then sequence your applications

Match on four things: your stage, the security you can offer, whether you fit a funder’s mandate (sector, ownership, youth, location), and how fast you need the money. Start with the route that fits best and costs least, and keep a fallback. Several credit applications at once can show up on your credit record and read as desperation, and each funder’s process takes time you may not have if you start late. Or use the business funding finder to get a ranked shortlist in about two minutes.

Step 4: Build the application pack

One clear summary of what you sell, to whom, and how the business makes money; the purpose and amount; the financial evidence; the repayment or growth case; and what you can offer in return. Funders read many applications, so the pack that is complete and easy to follow tends to win against the one that is merely ambitious. Bankable business plans covers what a funder actually looks for.

Why applications get declined

• Cash flow is not evidenced, or bank statements show irregular or thin activity.
• Financial records are missing, late or inconsistent.
• Tax or compliance is not in good standing.
• The business does not fit the funder’s mandate, so the application was doomed before it was read.
• The request is out of proportion to the size or stage of the business.
• Credit history is weak and nothing in the application offsets it.
• The funder requires security and the business has none.

A decline usually says something specific. Ask for the reason and treat it as a to-do list.

If you have no collateral, weak credit, or have already been declined

These are the situations most owners are actually searching from, and they narrow the options rather than close them. With no collateral, look at routes that fund against a transaction, such as a purchase order or an invoice, or against future performance, at agency programmes built for businesses without security, and at equity. With weak credit, expect banks to price or decline, and look at routes that weigh the business case more heavily. If you have already been declined, find out why, fix that, and go to a different type of funder rather than the same one with the same application. Being unfundable today is often a readiness problem, and readiness can be fixed.

How long it takes

It varies widely. Online and transaction-based lenders can move in days, banks in weeks, and development finance and equity in months. Plan backwards from the date you need the cash, and start earlier than feels necessary.

Where Caban fits

Caban is not a lender or a grant agency, and if a bank, SEDFA or the NEF is the better fit for you, we will say so. We work at the equity and growth-capital end: making a business investable, structuring a raise, investing ourselves, and introducing qualifying businesses to UK and European investors through Caban Capital. For businesses that need to become investable but cannot pay advisory fees up front, we also provide professional services in exchange for equity. If you are not sure which route fits, the funding readiness check is a good place to start.