When the dream becomes a reality and you’re an entrepreneur with an exciting new business plan, one of the biggest headaches will be how to finance your SME. Here are nine SME funding options available to you:
This is probably the first option a new business owner will think of. Bank loans and the use of overdrafts are a much-used method of acquiring finance. However, the criteria are very strict, and they almost always require collateral, like property.
Using credit cards is another possibility. You would only be able to borrow up to your credit limit, though. It’s a convenient option and you’ll only pay interest on the credit you actually use.
Invoice finance companies will forward upfront cash to SMEs based on unpaid invoices. They charge a small fee for collecting the debt. This eliminates the waiting period for payment, and gives those SMEs the cash upfront.
In this scenario, wealthy individuals will offer entrepreneurs with potentially rapid-growth ideas a large chunk of their own money in exchange for a share of the business and probably some control over it.
Cash advance companies will advance you working capital, and repayments are taken from daily credit card turnover. So you are always paying back in line with your income.
Borrow from family
This option can become complicated, but can work effectively if planned well. You will need a family member or friend who has the finance you are looking for, and it’s extremely important to get the loan terms in writing.
As the name suggests, this option is perfect for start-ups that could do with some mentoring and support to give their idea legs. In most cases, investors, whether financial or knowledge, will ask a share of the business in return.
Peer-to-Peer lending, also known as P2P, is a more recent option, and these lenders are more open to loaning finance to SMEs on a short-term risk assessment. Less complicated than a bank loan.
Crowdfunding is a very new online method of raising finance. This possibility involves many people investing small amounts in your business. There are quite a few crowdfunding options on the web, and some may include expertise in addition to straight finance. This is a completely debt-free option, and very popular at the moment.
Whichever route you choose, make sure you know what you’re getting into, and research, research, research.
*by David Lewis, CEO of Retail Capital, which was established to provide businesses with an alternative funding solution to traditional small business loans. It provides working capital to small businesses, the majority of which accept debit and credit cards as a payment method. Since 2011, the company has advanced close to R1-billion to thousands of businesses including restaurants, retailers, beauty spas and medical practitioners.