Although there are various ways or rather businesses that do not need financial assistance to launch/kick-off (which the majority of established businesses in South Africa did not need), some businesses cannot be launched nor can they survive without start-up capital. In this blog, we will be talking about substantial sources of financial aid and opportunities in South Africa.
- Government grant funding
This is the most popular type of funding, as it does not need to be repaid. It’s worth noting though, the application process is pretty intense. What can help enhance your chances of securing funding is if you show how your business will improve the lives of others through employment, solving a need, or contributing to economic growth.
Some well-known programs you can check out:
This type of funding is best suited for black-owned, youth-owned, and female-owned businesses.
- Equity funding
This is where the investor takes an ownership percentage of the business in exchange for funding. There are no monthly interest repayments whatsoever. However, this works best when you want to expand. It is not impossible to get it when you are just a start-up, although it is more challenging when you have no track record of sales whatsoever. Sometimes private equity funders are more interested in growing their investments.
With Equity Funding, investments are paid back in two ways:
· Paying dividends when the business makes money. (percentage of profits to be outlined in agreement contract).
· Sale of shares. Investors eventually ‘exit’ the business. The goal of every investor is to make more from their shares than they initially paid for them.
This is basically a partnership. To find these kinds of people, either approach people with common goals/mindset or a business-minded person you know might be interested. To win this kind of proposal, it’s important to make sure they see the value and ROI.
- Venture capital funding
Unlike personal equity funders, venture capitalists actually fund start-ups and mainly focus on making money from your business. This means that they are likely to invest exclusively in businesses that can provide good returns on their investment.
Be careful with venture capital though, it can be very expensive funding, especially in a case where your business is still in the start-up phase with a low valuation – you may end up giving a high percentage of ownership away in exchange for funding.
Here is a list of 2 prominent venture capitalists:
- Personal debt finance
This is the use of personal means such as credit cards, home loans, or even your pension fund, to fund your business. The nice thing about this option is that you have full control of your money and business, the downside to it is that your business failure will be a big blow to your personal finances.
Every type of financing has its downsides, do thorough research before going with any option. Find out what they stand for and what they are trying to achieve. As mentioned, it’s also important to make sure you have a shared values and vision. Let us know in the comments how you raised capital to start your business.