5 golden rules to enable funding for SMEs

Small and medium businesses are the lifeblood of South Africa’s economy.  One of the main challenges entrepreneurs face is access to capital to inject into their businesses. Funding is a critical part of ensuring that these businesses can hit the ground running in the new year.

Nobesuthu Ndlovu, director of SME for Old Mutual Corporate’s SME unit says, “Old Mutual has been supporting SMEs for a very long time and we have geared our SME offering towards actual challenges identified by business owners.

“Investors are specific about what they’re looking for when investing, and we offer holistic solutions to address SME challenges more seamlessly to help run and grow their businesses.”

Ndlovu shares five golden rules when it comes to enabling financing.

SMEs must be upfront when applying for funding

Don’t hide anything. It’s always best to be upfront with a funder on the financial performance and position of the business. Even in instances where there may be some adverse information such as a judgement – there are funders who truly are partners to SMEs and can find a workaround for certain challenges such as a remedy or even pre-investment support.

Manage your funds effectively

This may sound counter-intuitive, but business owners should be weary of expanding their business too quickly. Whilst accessing funding can be a challenge, once it is approved and disbursed, managing that funding in the business also requires focus from the business owner and finance managers.

More cash in the business means more controls are required over activities to ensure that it is used appropriately.

If steps to increase business income are not bearing fruit, reduce your loan amount or operating expenses. Misuse of funds often becomes the root cause of many businesses failing to repay their debt on time, and gradually falling into a debt trap. You can effectively manage budgets to track expenses and look for the best interest rates when consolidating debt.

Know how much funding is enough

There are risks to applying for too little or too much funding. The risk of applying for too little funding is that the potential growth (and access to cash flow for operations) may be constrained particularly where there is a purchase order or contract.

And of course, we all know the perils of taking on too much debt, the repayments required by the funders need to be considered over a longer period. And this has become even more evident now with the worsening macro-economic environment. The funding ranges differ for funders.

Be familiar with the steps to apply for funding

Before applying for funding, make sure your admin is in order. While different funders have different requirements, most will expect your company to be registered and your documentation should be in order. Funding requirements usually include:

• Businesses should have a minimum annual turnover of R1 million;
• Time in business – 12 months;
• Trading for more than 6 months; and
• Business registration, bank, and financial statements.

SMEs must have a clear strategy 

Demonstrate a clear strategy that proves you have access to markets for your products and services.

The technical ability to deliver should be clearly articulated. Entrepreneurs should show their ability to manage personal and business finance.

Directors should have business acumen and be able to respond to changes in the market. Most importantly, the compliance-related issues in your industry such as tax, and Environmental Impact Assessment (EIA) should all be in order.

Ndlovu concludes, “There are many funding opportunities available, and the key to any kind of business funding is having a solid business model and strategy to prove why the funding is necessary. When you understand why a business may need funding and how to get there, you can access the right capital to help get you off the ground and ultimately grow your business more efficiently.”

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