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Capital Raise: Looking at Business Funding, Raising Capital and Improving Your Cash Position

Do you need extra business funding to take the next step in your business strategy? We’ll help you review funding options and explore possible avenues to raise capital and get your business funded – from small to larger business, we will show you the best possible routes to raise capital.

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Do you need extra business funding to take the next step in your business strategy? We’ll help you review funding options and explore possible avenues to raise capital and get your business funded – from small to larger business, we will show you the best possible routes to raise capital for your business. #businessadvice #capitalraise #raisecapital #businessfunding

Every business – whether yours is a startup, small business or larger business – needs to raise capital to get the initial enterprise off the ground or to scale an existing operation. To get business funding, many businesses will enter into finance arrangements to cover the costs of the initial stages of the business, taking out loans to buy equipment, lease office or plant space, or hire a team. And yet many businesses, especially smaller businesses or startups, have a harder time with the capital raise process. This may be due to the weaknesses in their business model as perceived by wouldbe lenders, or simply due to a lack of knowledge of capital raise.
If you have existing business funding agreements, when was the last time you reviewed those arrangements or looked at other options for your business funding? Are your finance facilities still offering the best possible interest rates and repayment terms, or are there better deals out there?

Other business funding options may be available to help you fund your continuing growth, so taking a look at the current finance market as well as your specific options is worthwhile undertaking.

1. Refinance your existing loans

It’s possible that you already have business loans in place, that’s you’re gradually repaying over the course of the loan term. Sourcing that initial capital is such an important part of the startup process, and a vital stepping stone in getting your business idea operational, or your existing business to expand. If you have successfully secured bank or institutional funding for your business, reviewing these financial arrangements is a smart move to ensure you are getting the best possible terms.

The finance market is always evolving. New challengers will enter the market, new specialist finance products will be introduced and interest rates and repayment schedules will fluctuate and change. You may well have got a great deal on the business loans you took out five years ago – but refinancing these existing loans is likely to have multiple benefits.

The following are possible steps you could take to improve your cash position.

  • Consolidate your existing loans into one finance facility
  • Lower the interest rate you’re currently paying on the loan
  • Pay off your loan more quickly, to reduce the debt in the business
  • Improve your cash flow position by cutting your repayment expenses
 

And if you have financed property that has accumulated equity over time – that is, the property has increased in value – renegotiating the loan terms through refinancing could free up some much needed cash to bolster your business.
The key point here is that your business finance arrangements shouldn’t sit still. A loan should not be a static debt. You can revisit and refinance your debt so it works in the best interest of the business.

2. Looking at alternative routes to business funding

Traditionally, businesses went to their bank manager when additional business funding was needed. But the dynamics in the funding market have changed dramatically in recent years. Due to economic pressures, and the impact of the pandemic, the big banks have scaled back their lending to small businesses. Your neighborhood bank branch is no longer the first port of call when finance is needed.

On the flipside of this, there are a growing number of alternative lenders, smaller challengers and specialist finance providers who could potentially come to the rescue of an SME and offer business funding. And this has created a wide choice of different finance products to fit the needs of your growth plan.

  • If you need new equipment, asset finance is available.
  • When you have a short-term cash flow crisis, invoice finance is a good option.
  • If larger premises are needed, there are commercial mortgages to consider or bridging loans to make the initial purchase while you source the full capital that’s needed.

3. Exploring business funding and grants from government

During the pandemic, many businesses made use of the emergency funding that the government made available. But don’t forget that government funding isn’t just something that’s available during an emergency. The state will generally offer all kinds of different enterprise schemes to encourage investment in new and growing companies. This could mean having access to funding schemes, government-secured loans or even government grants. Unlike a loan, grants generally don’t need to be repaid, so making use of local government grants is a great way to boost your capital without having a negative impact on the company’s debt position.

4. Exploring tax relief schemes that are open to your business

Another element of government-backed financial support is the use of tax reliefs. One of your major expenses as a business will be paying your tax bill. But there are usually various tax reliefs available to help you reduce your tax bill and reinvest that saved money back into the business. Careful use of these reliefs can make a big difference to your finances.
The South African Revenue Service (SARS) has realised that new businesses –  especially small businesses – are the life blood of the economy.

Small Business Corporation Tax 

A small business that qualifies as a small business corporation (SBC) pays no income tax on the first R79 000 taxable income (for years of assessment ending on or after 1 April 2019).
The rate of tax you pay will depend on taxable income as the rates for a SBC are progressive (the higher the taxable income, the higher the tax rate).
The table below shows the the tax applicable for years of assessment ending on or after 31 March 2023:

Taxable Income (R) Rate of Tax (R)
1 – 91 250
0% of taxable income
91 251 – 365 000
7% of taxable income above 91 250
365 001 – 550 000
19 163 + 21% of taxable income above 365 000
550 001 and above
58 013 + 27% of the amount above 550 000

Who qualifies? 

To determine whether an SME qualifies for these tax benefits, we need to compare the business against the qualifying criteria. An SBC is a close corporation, private company (other than a personal services provider) or personal liability company of which:

  • Natural persons hold the entire shareholding or membership for the entire year of assessment.
  • The gross income does not exceed R20 million during the assessment year.
  • None of the members or shareholders, at any time during the year of assessment, held shares in any other company other than listed companies, collective investment schemes, body corporates, share-block companies, specific associations of persons, friendly societies, less than 5% interest in cooperatives, a venture capital company, shares in inactive private companies with assets of less than R5,000 or had taken steps to liquidate, wind-up or deregister.
  • Not more than 20% of the sum of gross income and capital gains consists of investment income and income from the provision of personal services.
  • If engaged in the provision of personal services, maintains at least three full-time employees (none of whom may be a shareholder or a connected person in relation to the shareholder) for core operations.

Turnover Tax

Turnover tax is a much more simplified system aimed at making it easier for micro businesses to meet their tax obligations. The turnover tax system replaces Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax for micro businesses with a qualifying annual turnover of R 1 million or less.

A micro business that is registered for turnover tax can, however, elect to remain in the VAT system (from 1 March 2012).
Turnover tax is worked out by applying a tax rate to the taxable turnover of a micro business. Year of assessment ending on any date between 1 March 2022 – 28 February 2023

Taxable Income (R) Rate of Tax (R)
1 – 335 000
0% of taxable turnover
​335 001 – 500 000
1% of taxable turnover above 335 000
​500 001 – 750 000
​1 650 + 2% of taxable turnover above 500 000
​750 001 and above
6 650 + 3% of taxable turnover above 750 000

Takeaway

Choosing the right routes to funding and finance will be vital to your long-term success as a business – so work closely with your advisors and think carefully about your choices.
At Kettle Consulting, we have the experience and expertise to help you understand and act on your business funding and capital raise options. Further, our tax advisors can assist your company with a full range of tax services.

To speak to an advisor, reach us via telephone 011 025 1446  or email us at info@kettleconsulting.co.za.

Insights by:

Kettle Consulting

Knowledge Desk

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