How can we help strengthen your business?

How can we help strengthen your business?

Looking for Business Funding? Here are 7 tips to increase your chances of success

Applying for business funding is a critical business decision. It is certainly subject of interest for a wide range of stakeholders. From the business person who might be expanding or looking for working capital, to the prospective funder who is in the business of availing the inflow of economic resources at a profit.

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Applying for business funding is a critical business decision. It is certainly a subject of interest for a wide range of stakeholders. From the business person wishing to expanding or looking for working capital, to the prospective funder who is in the business of availing the inflow of economic resources at a profit.

In this article we look at factors and tips to consider when you’re seeking business funding. These ultimately increase the chances of successful funding for your business. The importance of access to funding cannot be more emphasized than here in South Africa. SMMEs are the backbone of our economy and provide between 50 and 60% of employment in South Africa across all sectors.

Here are our top tips to help you secure your business funding

  1. Plan ahead for funding. In most cases applicants’ approach funders when their business is in dire need of a cashflow injection. This increases the chances of unsuccessful business funding due to poor preparation as they might not have all necessary supporting documents in place. Such documents would include, a business plan positioned for funding, execution of a good business model and a sound financial forecast. These are essential having in place, in the event a need for cashflow arises.
  2. Having operated for more than a year and managing overall expenses within a reasonable parameter, below 80% of sales would be ideal for improving your bottom line.
  3. Business performance measures. Having positive revenue growth year on year which is in excess of inflation. Gross Profit Margin, reflects the net effect between sales volume and the cost of production. Operating Profit Margin, speaks to the operating and investing decisions, what are the drivers for operating costs, is there an efficient use of assets? Net profit Margin is a reflection of financing decisions as it includes finance charges. Finance charges should not be too high as they might be eroding profit.
  4. Short-term funders also look at the business financial position. Solvency, what is the percentage of assets financed by long term debt. Liquidity being the company’s ability to settle current obligation through current assets.
  5. Some funders look at your Point-of-Sale transactions. Asking for short term Capital that is within a 6-month average of sales increases your chances of successful funding.
  6. Business owner credit checks. Having a positive credit score, between 650 and 700, and also paying credit on time increases your chances.
  7. Lastly asking the question of whether the required funding won’t overburden the balance sheet and increase default risk.

Funders on the other hand might consider the four Cs when analyzing your credit for business funding:

  • Character – Looks at Credit history. Which is the business/owners track record of paying debt.
  • Capacity – Measures the borrower’s ability to repay the loan. Are the earnings before interest and tax sufficient to cover additional finance costs. Can the balance sheet take on additional long-term debt.
  • Capital – Funders consider the funding requested and Capital contribution that the applicant is willing to make. The borrower’s skin in the game. It also evaluates whether they be able to pay back the loan.
  • Collateral – Collateral gives the funder assurance that if the borrower defaults they can repossess it and get something back.

DO YOU OWN A BUSINESS OPERATING FOR A YEAR OR LONGER?

If so, How Healthy is Your Business?

As an advisory firm, we are always at work building tools that will help businesses maximise their profitability. One such tool is the Kettle Consulting Business Health Check Tool, a proprietary tool that we deploy for our clients. Get in touch with us to schedule a business health check with us.

CONTACT US

Why should you work with a professional when applying for business funding, rather than doing it yourself?

The right professional should possess the following: requisite experience in funding applications, knowledge of funding provider requirements, and most importantly the ability to best present the information.

From the funding providers’ perspective, a qualified accountant on board proves the viability of the business idea.
We have the relevant experts and expertise to help prepare a business funding proposal that would capture the attention of the intended funder. Give us a call and one of our capable consultants will start the journey with you. You may call us on 011 025 1446 or email us on info@kettleconsulting.co.za

Insight by:

Aziz Ndara

Management Consultant

Kettle Consulting (PTY) Ltd

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