Finding Your Way In The Forest Of Funding Options

Finding Your Way In The Forest Of Funding Options

Written by Thriving Team

Finding Your Way In The Forest Of Funding Options

By Duncan Fraser

You have a great idea for a new business. Research has been done and you know there is a great need for your new product or service. But a lack of capital prevents progress. Let’s work through options where you can obtain much needed money.

Funding from family and friends

Asking family for start-up capital may not be a suitable choice, however family and friends could provide support and other beneficial forms of investment, such as rent-free accommodation, advice or mentoring.

Banks

They are reluctant to provide start-up capital, because most newly established businesses are considered a high risk investments. But there are useful products, i.e. overdraft, medium-term loan and business revolving credit facilities.

Angel investors 

These investors take a financial interest in the start-up enterprise, such as shareholding or a loan. It could be “an affluent individual who provides capital for a business start-up”. They bear a high risk and seek a high return on their investment, as much as 30% or more.

Examples of successful companies with exposure to Angel Investments are well known, such as Google, PayPal and LinkedIn.

Venture capital

This private equity capital provides seed capital to early-stage, high potential growth companies. The downside for the start-up is that venture capitalists usually have an involvement in the business.

Crowd funding

“Crowd Funding is the practice of funding a project or venture by raising monetary contribution from a large number of people”. This form of financing is used for business and charity projects.

Funding from the SA government

The SA government realises the country needs functioning, small and medium enterprises [SMEs]. There are a number of bodies in this sector.

  • The Department of Trade and Industry provides funding to qualifying businesses over a range of sectors in the SA economy.
  • The  National Empowerment Fund was established to support BEEE and previously disadvantaged individuals and communities. The funding provided by this entity is for start-up businesses and growth or expansion of a business, in the form of a loan or equity.
  • National Youth Development Agency has a grant programme with the objective to provide young entrepreneurs with financial and non-financial business development, including mentoring for a minimum period of two years.
  • Industrial Development Corporation The aim of the IDC is to enhance the country’s industrial capacity, and the continent as a whole by funding new entrepreneurs or supporting existing concerns, with a wide range of services, i.e. debt, equity (and quasi-equity), guarantee trade finance and venture capital.

There are several other government-sponsored schemes such as the Isivande Women’s Fund, which have restrictive mandates such as geographic or gender specific requirements.