Where can I get money [2006]
- Date : (2006-01-04)
- Author : SAIE
Where can I get money?
“I would love to start my own business, but where would I get the money?” said Lucy, “now if I could just win a few thousand on the lottery, then I could start a business.”
Like Lucy, so many people see the problem of getting access to finance as the biggest factor that is keeping them from running their own business.
When people think of starting a business, one of their first thoughts is “I need to find money!” As soon as they think “Money” they think that they need to go to a bank and get a loan.
If you look around the world, there are over 500 000 million small businesses. A study by the World Bank has shown that only less than 2% of these small businesses have got any funding from Banks or other formal lending institutions.
Unfortunately banks are not at all interested in your bright business idea, they are only interested in managing their risk. If you have a property or a policy that you can hand over to them so that they can get their money back if your business fails, they may be interested in giving you a loan. Basically with banks, if you can offer them security and low risk they may consider giving you a loan.
One type of business that Banks are interested in funding are franchises of big name branded businesses. You still have to qualify for the loan but the bank feels more comfortable because they are granting the loan, not really to you, but to a business concept that has proved itself many times before in many places.
But banks are only one source of funds, there are many others.
The Small Enterprise Development Agency runs a Business Referral and Information Network (BRAIN) that keeps a list of organisations who will fund small businesses from as little as R 500 (eg. for a hawker to buy stock) to as much as R 15 million or more for big development projects or existing businesses needing to expand. You can call their information centre on 0860103 703 or find them on the Internet at www.seda.org.za
Where you get your money from also depends on what you will use the money for. If you need the money to buy what are called “fixed assets”, things like a vehicle, machinery, computers or a printer, then you may be able to get bank funding particularly if the item is something that the bank can take back and sell to get its money back if your business fails.
Money for “Running costs”, things like salaries, rent, petrol, electricity and materials, is much more difficult to get somebody to loan to you because they cannot collect these things to repay the debt. You will probably need to fund your running costs out of your own money or from what you can borrow from your family.
As an alternative to a loan you could try to get an investor to buy a share of your business, this is called “Equity Funding”. The advantage is that once you have convinced an investor to put money into your business, there is no money to pay back, even if the business fails. The investor takes the risk. The disadvantage is that you are no longer totally in control of your business. Your investor will probably want to have a say in how you run the business and will always be owed a share of the profits, relative to the size of his or her share. This type of funding can work well for getting family and friends to join you in your business, but you have to have a very convincing business plan to get others to part with their money.
It is very interesting to look at the successes of small business start-ups based on their sources of funds. When a group of women attending a course for micro entrepreneurs in Gauteng were offered start up finance, 85% of them said “No thank you!” They chose instead to use their own sources of finance, either dipping into their savings or borrowing money from family and friends or using other community resources and networks such as the Stokvels they belonged to. 15% of the women decided to accept the financial assistance that was offered. When the research team visited the businesses some months later, they found that 70% of the women that had found their own money were still in business while most of those who had accepted financial assistance had failed.
Remember the story of Noludwe, who wanted to borrow R 5000 from me to open a Fish and Chips shop. I loaned her R 100 to get going and after 4 months she had over R 3000 in her bank account as well as having bought a fridge. She had grown the money herself and had no loan repayments to make at all. I have a sneaky feeling that If I had given her the loan of R 5000, a lot of that money would have gone into setting up the shop and she would have struggled to make repayments!
One of the disadvantages of getting a loan is the long process that it involves. First you have to prepare a comprehensive business plan that shows exactly what you are going to do and how you are going to do it. The business plan must show projections of costs and anticipated sales as well as showing how you will market your business and succeed, despite the competition. Once the business plan is completed, you then have to find a lending institution that is prepared to consider your loan application. Often the decision can take anything from a few weeks to a few months to process. The wheels turn very slowly and the waiting can be very frustrating, particularly for a keen new small business owner who is just itching to get going.
The best option is always to have as much control in your own hands as possible. This means that you will probably have to take responsibility for raising your own finance from your own network of family and friends. But be encouraged! If you can take R 100 and turn it into R 1000, then you can take R 1000 and turn it into R 10 000, or R 10 000 and turn it into R 100 000 or even a million. So don’t be like Lucy, complaining that she can’t start because she can’t get money. Say to yourself, “If it’s going to be it’s up to ME!” and get going. We wish you the best of success!
