Most new businesses need initial capital to get established. This capital may be quite high because of
- the cost of adapting and fitting out premises and
- the cost of stock (working capital) or equipment.
The cost of initial stock or equipment is likely to be a real problem – for example in the case of clothing shops or electrical goods outlets. Suppliers are highly unlikely to offer credit terms because they don’t know you and have not yet done business with you. You would thus have to buy stock and equipment in cash and then sell it to the public.
It is at this stage I encourage you to update your understanding of the various forms of funding and how this works. See more about this here.
Places that provide initial capital:
a) Loan from a bank
The bank will need information about yourself, your business, how you will promote your business, what market research you have done, and most importantly information about the financial side of the business. The banker will want to know how much money you need, what the capital will be used for, how much of your own money you are using, and how you will repay the loan. Whether you like it or not, you, therefore, need a business plan.
Preparing a business plan sounds very intimidating, but it is not and you should be able to draw up a plan if you do sufficient research. It is important that you do it yourself, understand it, and believe in it. It need not be a lengthy document, but it should include a cash flow projection. Remember that you must make this document your own.
b) IDC and other development agencies
The Industrial Development Corporation (IDC) has a wide variety of funds for which you can apply. These funds are however set up to target certain sectors of the industry. Like the IDC there are many other government and non-government agencies where you can apply for funding. The best way to proceed is to make search for such agencies on the internet.
c) Non-Banking financial institutions
Numerous loan providers have entered the market in the past decade. The focus is on the SME market with loan terms no longer than 12 months and loan amounts not higher than a couple of million rands. Their assessment criteria are also much more simple and rigid than those of banks with approvals as quick as 24h from the application. Nomad.cloud has partner with such loan providers and can assist you in obtaining finance for your business. Click here for more info.
d) Non-Banking financial institutions
By issuing shares and taking on an extra shareholder. Just remember, this will dilute your control and result in an additional owner of the business joining you in your endeavours. Probably not the way to go for most entrepreneurs.
