Entrepreneurship is an essential factor for economic growth and development in any country. In South Africa, entrepreneurship plays a crucial role in combating the country’s current economic challenges, such as high unemployment rates and poverty levels.
Therefore, a strong emphasis needs to be put on supporting and encouraging entrepreneurship in the country.
While it is all good and well to preach the importance of entrepreneurship, it is equally important to acknowledge that there are many obstacles that would-be entrepreneurs face when looking to start, grow or sustain a small business.
One of those issues is funding. Some options include government grants, incubators, bank loans and engaging the services of private lenders.
A combination of factors are always considered before entrepreneurs are granted funding. A lack of knowledge about the process often leads to frustration, leading applicants to become despondent.
“Many entrepreneurs race to seek funding with little understanding of what funders need to process an application successfully. This often leads to an overwhelming feeling of lack of preparedness and disappointment for applicants.”
“Preparing the documents needed to apply for funding can seem like a daunting task, which is why professional assistance can ensure the application process goes a lot more smoothly,” said Vijay Jainundh, Head of Paragon Debt Advisory.
Jainundh and his team at Paragon assist entrepreneurs to secure funding by leveraging their network of over 200 funders.
Jainundh highlights some fundamental requirements and documents that are needed to ensure that aspiring entrepreneurs are “funder ready”.
1. An overview of the business: A business plan is a vital component to present to funders to capture the DNA of your company, which will encompass the nature of your business operations: including the location, technical knowledge and the qualifications of the key individuals in your business.
2. Track record and expertise: It’s important to highlight your track record, which will set you apart from others applying for funding. As funders manage specific mandates, highlighting your operations and the segment of the industry you operate in will position you in the best light to be considered. It’s also important (and a legal requirement, as well as part of your governance due diligence) for funders to understand the structure of your business, from who runs it to who the funders will invest.
The credit assessment of shareholders and ultimate beneficiaries is critical to the funding process; funders will need to ensure that your business comprises individuals with a clean credit record and those for example, who are not politically exposed.
3. Information on the funding needs of the business: This will incorporate the amount you are applying for, the purpose of the funds and the expected timeline to deploy the funds. It will also include the type of financing you need, be it debt or equity, or over the short- or long-term, alongside the pricing range, and any information on other co-funders involved in the deal.
4. A financial model/budget/forecast that shows the cash flow of your business: This enables funders to determine if you can earn sufficiently to either service your debt financing or provide returns for equity investors. Market research will need to justify your estimates and the market opportunity put forward in your funding application.
5. A financial model needs to cover costs and expenses, growth of sales, profit margins, a balance sheet and your cash flow statement. Key ratios that are relevant to your business and industry will also need to be provided. Keep in mind that most funders want to see budgets that show the above factors for at least five years.
Other documents you will need: Your management accounts and latest signed financial statements will need to be provided, along with evidence of any guarantees available or any other agreements to validate the funding needs of the business.
These might include offtake agreements, cost quotations, FICA information including IDs of directors and shareholders; incorporation documents, the company tax number and clearance certificate, B-BBEE certificate, CVs of directors and shareholders, shareholders’ assets and liabilities if they stand as guarantors, bank statements, ID and proof of the business’ residence.
Funders tend to prefer to share the risk with a business owner wherever possible, as this shows conviction and commitment to your business. If a business owner can demonstrate existing equity or additional equity to invest in the business then funders find the funding opportunity more attractive, but this isn’t an essential component to securing funding, particularly if the above documents are presented.
vusi.adonis@inl.co.za
IOL Business