Raising funds for a startup is one of the most challenging things in the world of business. This is a guide on how to finance your business in South Africa.
A business cannot operate without capital; it doesn’t matter how little the capital is; you need money in order to run a business. An overwhelming number of businesses close each year due to lack of capital. The number one reason why people are hesitant to start their own businesses is also capital.
What exactly can you do to raise funding that will sustain your business until it becomes successful? Here are some of the places where you can source funding.
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You are the most reliable place to source funds for your business from. That’s if you have them; this is mainly for people who are currently employed. If you are currently employed then it’s best to redirect some of the money you earn at work to your business.
There are a lot of people who are self-funded, this route usually takes a very long time because you have to save a lot. It can take over 2 years if you are busy saving the money you think you will need to make your business a success.
This is outright the best way to get funding because you don’t give away equity to anyone. The main disadvantage is that it can only be done by people who are currently receiving an income.
From your family, relatives or friends
The second easiest place to source funds from is from the people who are close to you. Bear in mind that it likely won’t be a lot and might be just enough for you to get started. It’s also easier said than done; most family members or your friends will hesitate to give you money to start a business; especially if it’s your first attempt at being an entrepreneur.
However, there are people who got a “small loan of 1million” from their parents as well. Raising funds from people who are close to you will save you a lot in paying lawyers to draft all the legal papers.
From angel investors
An angel investor is anyone who is willing to fund your startup. They are called angels because they believe in your business before anyone else and there is usually no reason for them to. South African angel investors invest anywhere from R10k to R500k in most cases, but some can invest millions; especially if your business is really promising.
There are investment networks that are primarily made up of angel investors. Just Google angel investors in South Africa. Jozi Angels is also one such network.
From the government
This is probably your best bet; especially if your business is in agriculture or manufacturing. As long as it has the potential to hire a lot of people; especially unskilled labour. I know more people who have been funded by the government more than I do people who raised funding from the private sector.
There are a lot of government programs that can give you funding; especially for people who were previously disadvantaged and people who are from rural areas.
Through crowd funding
Crowd funding is not popular in South Africa. However, there are some businesses that have raised funds from crowd funding. What happens is that you join a crowd funding platform; present your business and get funding from multiple micro investors. Anyone who believes in your business can fund you.
It sometimes happens that the money is not enough to meet the funding goals of the entrepreneur. In that case; it is returned to the people who participated in funding the business. You don’t have to exchange equity in return; you can give them free use or samples of your products.
This was a guide on how to finance your business in South Africa. Do you have any thoughts or questions? Comment below.