Business Finance South Africa - Find Funding for your Business or Ideas.

In this guide we discuss how to secure business finance, SMME funding and the different types of business funding out there for business owners, such as purchase order funding. Designed for SMMEs startups and prospective entrepreneurs, getlion is a free mobile application that helps you start, manage and grow your business, and rewards you for doing so.

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Whether you’re considering starting your own business, or you’re looking to grow an existing company to new heights, business finance remains one of the most critical factors in the mind of most entrepreneurs. As the old saying goes, “cash is king” – but where do you begin when you need to beef up your bank balance?

Whether you are in Cape Town, Pretoria or Johannesburg, Sandton or Centurion, this article provides a clearier picture on how to secure finance as a business owner.

Below we outline the basics behind funding your business, the types of funding available, and how getlion aims to provide a simple, practical solution to help entrepreneurs source suitable business finance in South Africa. (Experience the FREE app for yourself – Download the getlion business app)

Type of business finance/funding:

Before applying for any funding, entrepreneurs should be clear on their financial position, plans for the future, and business strategy to get there. Know how you intend to use the funds, and ensure the money is spent on profit-making activities. Applying for funding to simply increase your salary is a terrible idea – so keep your priorities in check. All of these criteria can influence the type and term (length) of funding required.

Internal Funding:

Personal savings are the first place to start. Obvious enough, right? Well, we know that you wouldn’t be reading this article if you had the savings in the first place, but it’s important to emphasize. Self-funding a business is the best way to go, as it gives you complete control of your company. If you haven’t already, get into the habit of accumulating a specific savings pot for your business dream.

smmes funding South Africa Cape Town Pretoria Johannesburg getlion business app

External Funding:

There are two primary categories of external business funding available:

  1. Debt

You loan/borrow money from an external party (generally a bank or finance business) and repay this loan WITH INTEREST according to a defined timeline (otherwise known as a repayment schedule). 

Pros:

  • You generally don’t have to give up ownership in your business.
  • The terms of a loan are largely influenced by set criteria, making them almost ‘scientific’ to calculate. This means there’s little valuation bias (i.e. difference in opinions over what the business is worth).
  • The long-term value and profits of the business stay yours.

Cons:

  • It costs money to borrow money. You have to be very careful to ensure that the repayment terms – including rate of interest and the frequency of repayments – suit your cashflow and plans.
  • Most traditional finance institutions prefer low risk businesses, and avoid startups or new ideas.
  1. Equity

You raise funds from another party, in exchange for a share (or part ownership) of your business. In essence, you’re selling a piece of your business to an investor, so be prepared to put your sales hat on.

Pros:

  • The investor shares the risk if the business fails.
  • Often, there’s no repayment schedule.
  • Investors are more likely to consider funding startups.
  • Investors with ownership are more likely to provide more than just money – in the form of advice, access to their networks, and more.

Cons:

  • By giving away a portion of the business, you have to share profits, value and sometimes, even control.
  • Investors are harder to find.

*Note there are instances when sophisticated investors fund the business through a combination of equity and debt – common in venture capital (see below). We recommend you seek professional advice in this instance to ensure the arrangement serves your business best.

How much funding do I need?

It’s as important to make sure you’re getting the right amount of funding. Too little funding is self-defeating, giving you few options to expand or meet the needs of the business. Alternatively, too much funding presents its own set of challenges. Excessive debt can put substantial pressure on the cashflow of the business, where you might have to pay back more than your sales, turnover or budget can justify. Similarly, giving away too much equity in exchange for funding may have short-term appeal, but ultimately it can affect your long-term value in the business and the amount of control you retain. In a growing business, equity given away today is going to be worth more in the future, and entrepreneurs will have to pay a premium if they intend to buy this back.

Those who fail to plan, plan to fail. Your budget will determine your need for cash, and how much you need to borrow or raise. Be sure to understand the costs required to setup your business, and then operate it on an ongoing basis. Based on your sales forecast, you can calculate how much you can afford to repay each month. Most people are afraid of debt, but managed correctly, it can be a valuable asset to your business. When it comes to debt funding, be sure to understand the effects of interest, and what happens if interest rates change. By understanding and forecasting the requirements of any loan, you will be well positioned to decide your capacity to service it.

Where to get business finance:

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Certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

  1. Banks

Banks are the most common financial institution in the economy and are a good starting point for raising funds. Most offer options specifically designed for businesses. However, banks typically require your business to have an operating history, the relevant paperwork and for you to have some form of security/collateral for the loan (an asset or item of value that the bank can claim if you’re unable to meet the commitment of the loan – like a property). This typically hinders the application of new businesses. However, If you have an existing business and run it in a compliant manner with a favourable trajectory, then bank financing is a strong option for you. Whilst banks offer some of the cheapest repayment rates, they are often the hardest to qualify for. 

Bank financing is typically offered in the form of “term loans” – where you borrow a sum for a defined period, and pay back the money with interest calculated each month – or via a credit/overdraft facility, which is a limit/sum that the business can lend against when it requires. In the second instance, most banks have credit facilities incorporated into their account options – allowing you flexibility to borrow the money and pay interest accordingly. Whilst easy to qualify for, your limit starts off small and grows with time.

  1. Angel Investors (Individuals, friends, family).

Angel investors – seemingly named because of the early role and risk they’re willing to take in a startup business – are increasingly common. In the early stages of your business, these are the individuals willing to support your vision and business dreams. They usually require a decent chunk of equity in exchange for the risk they’re taking, but often rightly justified! If you plan to expand out of your bedroom or garage and grow your space, infrastructure or team, angel investors are invaluable.

This style of fundraising is moving beyond the mere living room elevator pitches to your family and friends and is seeing the emergence of formal angel investor networks, making them an ever-viable funding option to South African entrepreneurs. As you’re dealing with individuals, you can often negotiate flexible funding terms, but there is also potential friction in raising money from your personal network.

  1. Crowdfunding

Crowdfunding is a relatively new concept in South Africa, and takes angel investing up a level. It involves running a formal fundraising/marketing campaign for your business, usually via an online platform, and allows you to pitch for funding from multiple investors, customers and members of the public. Going through a legitimate website or online platform offers potential investors the comfort of knowing you, your business or idea have been vetted and met certain criteria.

The funding can take the form of equity, debt or even pre-sales of the products/services you intend to offer. As you’re competing for the attention of individual investors among other business opportunities, crowdfunding is as much about marketing and networking, as it is about your business model and plan. 

  1. Purchase Order Financing

Often smaller businesses are able to secure valuable contracts or deals with bigger customers, but then struggle to raise the money to deliver on what was promised. Purchase order financing is relevant for SMMEs that have secured contracts or purchase orders from a customer and require the funding to deliver on those agreements in a timely manner. Unlike equity financing, the entrepreneur retains complete ownership of his business and the finance institution typically offers support to the business in delivering the contract.  P.O. financing is suited to supply-side companies offering business-to-business services. Like with any type of funding business, ensure you understand the interest and repayment terms.

  1. Stock/Inventory Funding

When a business is sitting on unsold or ready inventory/products, they can consider applying for a loan against the future sales of that inventory. This helps the company with cash flow to keep the business operating efficiently whilst items are waiting to be sold. The need is often short term, making this type of financing more appropriate than bank funding, but always be sure to calculate the interest and terms of the debt repayments. 

  1. Accounts Receivable Financing

Much like inventory finance, accounts receivable funding lets the business borrow money against the money it is owed from customers (in accounting terms, known as debtors). Accounts (or monies) yet to be received are an asset to the business. As those outstanding amounts are paid by customers, the business is then able to settle the debt it raised. This helps the business with cashflow whilst it waits to receive what it is owed.

  1. Working Capital Finance

Working capital refers to the cash available for the day-to-day operations of the business and is often the sign of a business’ health. It’s the sum of your assets less liabilities – i.e. what you have available to work with. Working capital lets you deal with daily requirements, like stock, staff, utilities and equipment to operate efficiently. All business owners must have a finger on the pulse of their company’s working capital in order to plan accordingly. South Africa has seen the emergence of several companies willing to provide loans for working capital requirements, which are suited for short-term projects.

  1. Government Grants

The South African government recognizes the important contribution of small businesses to the economy and provides various funding options to qualifying businesses in the interest of business development. Grant funding is extremely attractive, because it’s one of the few forms of financing that doesn’t need to be repaid. Because of this appeal, it has strict qualifying criteria and deliverables, such as B-BBEE and job creation.

Most applications are lengthy and labor-intensive, and the recipient is required to spend the funds in a pre-determined manner. Various funds have been established to cater for specific businesses. Examples include the Small Enterprise Development Agency (SEDA), The National Empowerment Fund (NEF), The Department of Trade and Industry (DTI) and National Youth Development Agency (NYDA) amongst others.

  1. Venture Capital

Venture Capital is a formalized type of investment/fundraising, where registered institutions, fund managers or groups invest in high-growth, innovative businesses in exchange for ownership. They can do so with a combination of equity and debt funding instruments. Unlike most angel investors, VC’s typically bring with them sophisticated networks, advice and support – and typically play an active role in ensuring that the company meets growth expectations. Venture Capital providers typically invest larger amounts and try to invest in early-stage companies, in order to realize substantial returns over the term of their investment. It is also common that VC’s manage a pool funds on behalf of collective investors, to whom they charge a fee in exchange for managing and growing their money.

Venture capital requires a bespoke style of fundraising, formal pitchdeck/presentation sessions, and is usually relevant when a company already has some market traction, is ready to scale in customer volume, and has already raised the funds to get to that point. Whilst attractive, venture capital is one of the hardest forms of funding to secure, so we recommend upskilling yourself and seeking advice before pursuing this funding.

Important concepts to understand when applying for funding:

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  • Credit Report– Your credit report contains the information on your past/present credit arrangements and loans – think bank, home bond, store accounts – and your payment performance. South Africans are entitled to a free credit report through a registered credit bureau each year. You can complete your credit report via the getlion app.
  • Credit Score– A number indicating your likelihood and ability to repay a loan to a finance institution. Finance organizations rely on credit bureaus to score and evaluate the risk of a customer or company. This score accounts for things like credit payment history and financial strength of the person/company. The more you default on credit payments, the lower your score (and higher your risk). Thankfully, there are ways to improve.
  • Interest Rate– The amount charged by a finance institution for lending the money. It can be fixed (stays constant throughout the term) or variable (changes during the term).
  • Prime Rate– The interest rate set by the South African Reserve Bank. Most financial institution use this as a base when determining how much to charge customers for borrowing.
  • Loan Term– The time period in which to repay the loan.
  • Secured verse Unsecured Loan– A secured loan backed by certain security or collateral, which the lending institution can seize should you fail to pay your debt. An unsecured loan can be offered – i.e. no collateral required – if the applicant has good credit and low risk.
  • Annual Fee– The administration cost charged by the finance institution for the loan.

Your funding application checklist

  • Calculate how much funding you require.
  • Formulate a business plan outlining what the funds will be used for. Important to ensure this covers operations, marketing and finance. You can access a great business plan template via the getlion app.
  • Compile a budget, sales forecasts with timelines, and a strategy for growth.
  • Understand and document the risks to your business, and plan around them.
  • Make sure you have up-to-date financial records (good accounting software is a non-negotiable here). You can access great discounts on accounting software via the getlion app.
  • Make sure you have up-to-date tax records. Not registered for tax yet? Why not do so via getlion, in partnership with BizPortal.
  • Understand the value of any security/collateral you can offer – get a valuation on your home.
  • Make sure your compliance is in order – company records, annual returns, TCC, B-BBEE certification etc. Not sure where to start? You can find the answers via the getlion app, in partnership with BizPortal.
  • Do you know, and can you improve your credit score? In partnership with a registered credit bureau, getlion gives users access to one free credit report, annually.

Using getlion to find business funding

Getlion was designed to support small businesses and prospective entrepreneurs with access to what they need most. 

Whether you are taking a stroll through the Johannesburg Botanical Gardens or standing on the summit of Table Mountain or finding your way in Waterkloof and Centurion, we know that as a cornerstone of the South African economy, and a source of innovation, small and medium business owners need the right support, resources and funding to succeed. Particularly in the area of funding, this is no easy task. getlion puts the power in your hands by providing you with the information and free resources to access to multiple funding options for your business. 

We feature a selection of well-established, reputable funders to connect with, as well as a way to instantly apply via the app. From purchase order funding, to banks and crowdfunding options, the list of funders is steadily growing, giving you greater freedom of choice. It often takes time to find the best possible funder, which is reduced by using getlion

First, download the getlion mobile application from Google Play or Apple App Store. Once you have created an account and arrived on the home screen, you’ll be able to navigate to the “Money” tab, where you can view various funding options for your business’ needs.

Far beyond providing a helpful approach to finding business finance in South Africa or SMME funding, we designed getlion to serve as a non-negotiable tool for any business owner or entrepreneur in the start and growth of their businesses. getlion works with industry-leading partners in the supply of funding, business services, best-of-breed tools, and knowledge resources.With getlion, we seek to aggregate the very best companies via one platform, those who are serious about contributing to the growth of South African small businesses through services, products, funding and advice.

The Benefits of Downloading getlion

The app features a variety of benefits, here are just a few:

  1. The app is completely free to use. You can download and have your account set up in a matter of minutes.
  2. getlion is easy to use. We’ve already touched on this, but it’s worth reiterating.
  3. Through getlion, you can access discounted services and offerings from industry-leading partners. We understand the things that business owners needs to run their business well. So, we’ve partnered with and vetted the best businesses – including funders – to give you access to their offerings at discounted prices.
  4. The app is continuously updated. New features are constantly being added to cater for what you need to run your business.
  5. Build your brand, community, credibility and know-how. By using the app, you can give your business profile a boost, improve your credibility, further your networking efforts and improve your chance of securing business funding. We even let you share e-business cards via the app.
  6. Get rewarded for running your business. Getlion is the first app of its kind to reward business owners for running their companies well. Complete your in-app profile by supplying your details – like company registration, tax number, website and B-BBEE document – and you’ll get access to a host of business-worthy rewards. We even help you meet these requirements via the getlion app. You can use these points to access discounts and vouchers for mobile data, office cleaning, legal services, and other business-related services, all to support you in the growth of your company.

The getlion business app is available from the Google Play and the Apple App Stores and has been developed to function seamlessly on most smartphone devices. Start, manage and grow your business using getlion, and get rewarded for doing so. Download the app for free today.

Frequently Asked Questions(FAQs) about business finance in South Africa:

How do I get funding for my business in South Africa?

Funding is a key requirement for launching a new business in South Africa. There are many ways to get business funding in South Africa. Follow this simple checklist to improve your chance of approval:

  • Calculate how much funding you require.
  • Formulate a business plan outlining what the funds will be used for. Important to ensure this covers operations, marketing and finance.
  • Compile a budget, sales forecasts with timelines, and a strategy for growth.
  • Understand and document the risks to your business, and plan around them.
  • Make sure you have up-to-date financial records (good accounting software is a non-negotiable here).
  • Make sure you’re registered for tax and have up-to-date tax records.
  • Understand the value of any security/collateral you can offer – example: get a valuation on your home or vehicle.
  • Make sure your compliance is in order – company records, annual returns, TCC, B-BBEE certification etc.
  • Do you know, and can you improve your credit score?

Once you have the above in order, you can apply for funding from various institutions. 

Where can I get business finance?

There are various places to apply for business finance and certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

  1. Banks
  2. Angel Investors (Individuals, friends, family).
  3. Crowdfunding
  4. Purchase Order Financing
  5. Stock/Inventory Funding
  6. Accounts Receivable Financing
  7. Working Capital Finance
  8. Government Grants
  9. Venture Capital

You can apply for funding with various institutions via the getlion mobile app funding portal, coming soon.

Who can fund my business in South Africa?

There are various places to apply for business finance and certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

  1. Banks
  2. Angel Investors (Individuals, friends, family).
  3. Crowdfunding
  4. Purchase Order Financing
  5. Stock/Inventory Funding
  6. Accounts Receivable Financing
  7. Working Capital Finance
  8. Government Grants
  9. Venture Capital

You can apply for funding with various institutions via the getlion mobile app funding portal, coming soon.

How can I get loan for business?

You can get a loan by applying to various finance organizations. This will require you to complete an application form with each. Make sure you know how much funding you require. Prepare a formal business plan. Compile a budget, sales forecast with timelines and a strategy for growth. Also, ensure you have up to date financial records, company, compliance and tax documents. You can apply for various loans via the getlion mobile app.

What is the best bank for a small business account?

The best bank for small business depends on a number of factors, including opening fee, support, ease of opening, overdraft facilities, bank reputation and credibility, and ongoing payment/transaction fees. You can open a bank account with one of the four “big banks” in South Africa, thanks to Bizportal and getlion.

What documents do I need to open a business bank account?

  • Your RSA ID document or drivers license.
  • A company email address.
  • Proof of physical address (rental agreement or utility bill in the name of the company).
  • R500 to activate your account.
  • Your company registration document from the CIPC.

Which bank is best for business account in South Africa?

The best bank for small business depends on a number of factors, including opening fee, support, ease of opening, overdraft facilities, bank reputation and credibility, and ongoing payment/transaction fees. You can open a bank account with one of the four “big banks” in South Africa, thanks to Bizportal and getlion. Make sure you’re opening a business account, designed for business activity. Make sure it provides you adequate flexibility on withdrawals and monthly payments.

What do you mean by business finance?

Business Finance is the broad term describing the money, funding or capital required to start and operate a business. Business finance is very important, allowing you to buy assets and inventory, rent or buy premises, pay your staff, market the business and build your company.

Where can I get business finance?

There are various places to apply for business finance and certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

  1. Banks
  2. Angel Investors (Individuals, friends, family).
  3. Crowdfunding
  4. Purchase Order Financing
  5. Stock/Inventory Funding
  6. Accounts Receivable Financing
  7. Working Capital Finance
  8. Government Grants
  9. Venture Capital

You can apply for funding with various institutions via the getlion mobile app funding portal, coming soon.

How do you finance a small business?

You can either finance a small business yourself (from personal savings) or raise the money from other parties. This can either be in the form of a loan (where you have to repay the loan amount, with interest) or equity (a direct investment in your company in exchange for a share of the ownership). Grants fall outside of these definitions, where you don’t have to repay the loan or give us equity. However, grants are difficult to apply for succesfully. There are various places to apply for business finance and certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

Banks, Angel Investors (Individuals, friends, family), Crowdfunding, Purchase Order Financing, Stock/Inventory Funding, Accounts Receivable Financing, Working Capital Finance, Government Grants and Venture Capital. You can apply for funding with various institutions via the getlion mobile app funding portal, coming soon.

What is Business Finance and its importance?

Business Finance is the broad term describing the money, funding or capital required to start and operate a business. Business finance is very important, without it, you cannot successfully setup and operate a business. It allows you to buy assets and inventory, rent or buy premises, pay your staff, market the business and build your company.

How do I get government funding for my business?

The South African government recognizes the important contribution of small businesses to the economy and provides various funding options to qualifying businesses in the interest of business development. Grant funding is extremely attractive, because it’s one of the few forms of financing that doesn’t need to be repaid. Because of this appeal, it has strict qualifying criteria and deliverables, such as B-BBEE and job creation. Most applications are lengthy and labor-intensive, and the recipient is required to spend the funds in a pre-determined manner. Various funds have been established to cater for specific businesses. Examples include the Small Enterprise Development Agency (SEDA), The National Empowerment Fund (NEF), The Department of Trade and Industry (DTI) and National Youth Development Agency (NYDA) amongst others.

What are SMMEs in South Africa?

SMME’s are small, medium and micro enterprises – otherwise known as small businesses. They form the largest component of most economies and employ the most people. SMMEs are defined as companies that employ less than 250 people and earn less than R220m in turnover. We feel this definition does not accurately reflect the state of South Africa’s economy, where most of the 2.5m small businesses (although only 550,000 are registered) make less than R1m per annum.

How do I get funding for my business in South Africa?

There are various places to apply for business finance and certain funding is more appropriate than others, relative to the nature (i.e. what your business does), age (startup vs established) and plans of your business.

  1. Banks
  2. Angel Investors (Individuals, friends, family).
  3. Crowdfunding
  4. Purchase Order Financing
  5. Stock/Inventory Funding
  6. Accounts Receivable Financing
  7. Working Capital Finance
  8. Government Grants
  9. Venture Capital

You can apply for funding with various institutions via the getlion mobile app funding portal, coming soon.

Who qualifies for small business grants?

 The government recognizes the important contribution of small businesses to the economy and provides various funding options to qualifying businesses in the interest of business development. Grant funding is extremely attractive, because it’s one of the few forms of financing that doesn’t need to be repaid. Because of this appeal, it has strict qualifying criteria and deliverables, such as B-BBEE and job creation. Most applications are lengthy and labour-intensive, and the recipient is required to spend the funds in a pre-determined manner. The qualifying criteria differ between organizations.  Various funds have been established to cater for specific businesses. Examples include the Small Enterprise Development Agency (SEDA), The National Empowerment Fund (NEF), The Department of Trade and Industry (DTI) and National Youth Development Agency (NYDA) amongst others.