Before borrowing money for your business make sure you read this

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By Kungawo Dlamini

One of the major challenges small businesses encounter is funding. And funding to business is very important.

Unfortunately, without adequate funding, no business idea can fly. So getting funds for your start-up can give you a lot of headaches.

As a rule of thumb, If you are looking at raising capital for your start-up, one of the things you should consider first is the profitability of your idea.

How Profitable is your idea?
What is your start-up seeking to address?
How much will be enough for the business?

Then there is a question on your financial capability.
Do you have the right financial management strategy? How is your credit history? Do you have collateral to access loans? is your business Ideas and plans good enough to convince investors?

Another major concern you should consider is understanding the types of financing opportunities available for businesses to access. And identifying the ideal one that will be suitable for your idea.

I’ve worked and talked with many start-ups in Africa and most of them find difficulties in accessing loans, the few who are able to access these loans are still struggling to pay up the loans because of taking loans without understanding the repayment procedures.

The thing is, most start-ups who are cash poor are sometimes desperate for cashflow that they end up in loans situation that can kill their ideas.

One of the things we advise small business owners is to under the following:

1. Know the type of loan that is right for your start-up
2. Understand the repayment term and procedure of the loan
3. Know the effect of the loan on your start-up
4. Understand the penalty involved in failing to pay up the loan
5. Know the requirement for accessing loan

I recently interacted with a start-up who was cash poor and needed to boost up their credits option by accessing loans from a bank. While they had just the idea and a business plan, the bank was looking for collateral.

At the end of a long argument, they were able to access loans from a very bad lender whose interest rate was draining their success. It took our intervention to get someone from venture capital to assist them with grants that help offset the loans and gave the start-up a little lift.

If you are undergoing some difficulties setting up your start-up because of your capital and you have a good business plan you can apply for a grant, reach to investors for equity sharing, connect with other business owners for advice, and put loans as your last resort.

About The Author

Kungawo Dlamini is a financial advisor based in South Africa. Kungawo is interested in assisting small business owner access funding for their start-up

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