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A Fin24.com user asks:
How can I get a startup loan for a new business?
Fin24 entrepreneurship writer Marc Ashton responds:
Fin24 often receives enquiries from would-be entrepreneurs seeking out financing for small business ventures.
However, too often these enquiries assume that individuals can walk into a bank and simply secure spending money. Entrepreneurs are then frustrated when loans are not forthcoming.
My first point would be that entrepreneurs should be careful about what they ask for, because they just may get it and dig themselves into deeper trouble.
It is a crude example, but with failure rates of new businesses somewhere near 90% consider this: before you go and hit up your bank for a loan for a startup business, convert the amount into an equivalent car.
Would-be entrepreneurs often toss out numbers like getting "a couple million" from the bank. But if I parked a R2m Porsche in your driveway instead of giving you the business loan, would you be able to pay for that Porsche when the bill comes at the end of the month, quarter or year?
Business owners who have never had excess cash in the bank can often be more dangerous to themselves than those with a firm grasp on handling money. A quick look at your personal balance sheet will often tell a brutal truth.
Ask yourself exactly what you need the money for, and how you are going to deploy it without burdening yourself with debt. Creative thinking and smart partnerships can often be worth a lot more than cash in the bank.
Look for niche funders
Traditional banks have worked hard to develop their small business offerings. Sasfin Bank and Grindrod Bank have also begun to entrench their position as potential funders for the more established businesses.
Organisations such as Khula, Business Partners, Sanlam Cobalt, Old Mutual's Masisizane and GroFin have all made strides in seeing capital moved to small businesses and providing viable alternatives.
Venture capital sounds like an attractive source of funding for your business. However, one of the reasons you will have very little success with it is that once all your costs have been taken into account, you are probably looking at financing costs that would make a credit card company blush. If you haven't got a business which is going to get big and fast, you are unlikely to enjoy success here.
Andy Bryant, director of Chester Finance, says:"I think that a business, when seeking funding, should determine why it needs finance and to what end - whether it needs working capital, funding for stock, assets, etc.
"It should then look at the market and see which organisations offer the type of funding it needs. It should consider not only commercial bankers to satisfy this need but also niche funders; a business should make various approaches rather than the usual tactic of only looking around once the bank has declined the application.
"Borrowings from these independent companies do not have to get lumped together with those from commercial banks to calculate total exposure; they are often more professional with quicker turnaround times and can offer more innovative solutions.
"You may also find a more hands-on approach with advice from more experienced and knowledgeable personnel with individualised attention. These finance providers can work by matching the correct type of finance with the correct business need and funding term.
"For example, they can avoid using working capital to finance long-term assets, or operational cash flow to fund imports even if the business is cash flush right now," says Bryant.
- Fin24
How can I get a startup loan for a new business?
Fin24 entrepreneurship writer Marc Ashton responds:
Fin24 often receives enquiries from would-be entrepreneurs seeking out financing for small business ventures.
However, too often these enquiries assume that individuals can walk into a bank and simply secure spending money. Entrepreneurs are then frustrated when loans are not forthcoming.
My first point would be that entrepreneurs should be careful about what they ask for, because they just may get it and dig themselves into deeper trouble.
It is a crude example, but with failure rates of new businesses somewhere near 90% consider this: before you go and hit up your bank for a loan for a startup business, convert the amount into an equivalent car.
Would-be entrepreneurs often toss out numbers like getting "a couple million" from the bank. But if I parked a R2m Porsche in your driveway instead of giving you the business loan, would you be able to pay for that Porsche when the bill comes at the end of the month, quarter or year?
Business owners who have never had excess cash in the bank can often be more dangerous to themselves than those with a firm grasp on handling money. A quick look at your personal balance sheet will often tell a brutal truth.
Ask yourself exactly what you need the money for, and how you are going to deploy it without burdening yourself with debt. Creative thinking and smart partnerships can often be worth a lot more than cash in the bank.
Look for niche funders
Traditional banks have worked hard to develop their small business offerings. Sasfin Bank and Grindrod Bank have also begun to entrench their position as potential funders for the more established businesses.
Organisations such as Khula, Business Partners, Sanlam Cobalt, Old Mutual's Masisizane and GroFin have all made strides in seeing capital moved to small businesses and providing viable alternatives.
Venture capital sounds like an attractive source of funding for your business. However, one of the reasons you will have very little success with it is that once all your costs have been taken into account, you are probably looking at financing costs that would make a credit card company blush. If you haven't got a business which is going to get big and fast, you are unlikely to enjoy success here.
Andy Bryant, director of Chester Finance, says:"I think that a business, when seeking funding, should determine why it needs finance and to what end - whether it needs working capital, funding for stock, assets, etc.
"It should then look at the market and see which organisations offer the type of funding it needs. It should consider not only commercial bankers to satisfy this need but also niche funders; a business should make various approaches rather than the usual tactic of only looking around once the bank has declined the application.
"Borrowings from these independent companies do not have to get lumped together with those from commercial banks to calculate total exposure; they are often more professional with quicker turnaround times and can offer more innovative solutions.
"You may also find a more hands-on approach with advice from more experienced and knowledgeable personnel with individualised attention. These finance providers can work by matching the correct type of finance with the correct business need and funding term.
"For example, they can avoid using working capital to finance long-term assets, or operational cash flow to fund imports even if the business is cash flush right now," says Bryant.
- Fin24
