What do your small business investors want to hear from you as an owner? Small businesses play an important role in the economy and funding is an important part of ensuring that these businesses are sustainable.
Nobesuthu Ndlovu, SME director for Old Mutual Corporate’s SME unit, said there are five golden rules when small or medium businesses apply for financing. Don’t hide anything, manage your funds effectively, know the amount of funding you need, familiarize yourself with the funding steps and make sure you have a clear strategy to show investors.
“We have been supporting SMEs for a long time and we have tailored our SME offering to the real challenges identified by business owners. Investors are specific about what they are looking for when investing.
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Be upfront when applying for funding
Ndlovu said he was careful not to hide anything.
“It is always the best to be funded in terms of financial performance and business position, even if there is some bad information such as judgments. There are funds that are actually partners of SMEs and can find solutions to certain challenges, such as medicine or pre-investment support.
Manage funds effectively
Although this may sound counter-intuitive, Nldovu says business owners should be careful not to expand their business too quickly.
“While accessing funding can be a challenge, once approved and disbursed, managing the funding in the business also requires the focus of the business owner and financial manager. More cash in the business means more control is needed over activities to ensure it is used appropriately.
When measures to increase business income are unsuccessful, his advice is to reduce the amount of loans or operating costs, because the misuse of funds is often the cause of many businesses that cannot pay their debts on time and gradually become a debt trap.
“You can manage your budget effectively to track your expenses and find the best interest rate when consolidating your debt.”
Know how much funding you need
“There is a risk in applying for too little or too much funding. The risk of applying for too little funding is that growth potential and access to cash flow for operations may be limited, especially in the case of purchase orders or contracts.
Ndlovu said we all know the dangers of taking on too much debt and therefore, the repayments required by investors should be considered over time, especially now with the deteriorating macro-economic environment.
Funding ranges vary for funders, such as Old Mutual SMEgo, a one-stop digital solution that helps SMEs open and grow their businesses with funding between R10,000 and R20 million.
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Learn the steps to apply for funding
Before you ask for funding, make sure your admin is in order, says Ndlovu. While different funds have different requirements, most will expect your company to be registered and your documentation to be in order.
To apply for financing from SMEgo, requirements include:
- The business must have a minimum annual turnover of R1 million +
- Time in business must be more than 12 months
- The business must be trading for more than 6 months
- Business registration, bank and financial statements must be submitted.
SMEs must have a clear strategy
If you want to apply for financing as a small business, you must demonstrate that you have a clear strategy that proves you have access to the market for your products and services, as well as the technical ability to deliver, which must be clearly articulated.
As an entrepreneur, you must demonstrate the ability to manage your personal and business finances.
“Directors must have business acumen and be able to respond to changes in the market. Most importantly, issues related to compliance in your industry, such as taxes, and environmental impact assessment (EIA) should all be in order.
Ndlovu said there are many funding opportunities available and the key to funding any business is to have a solid business model and strategy to prove why the funding is needed.
“When you understand why your business needs funding and how to get there, you can access the right capital to help you get off the ground and ultimately grow your business more efficiently”.