business and want to ensure that the business becomes successful. These investors
are willing to put money into high-risk businesses with the hopes that in 5-10 years’
time they will receive their returns. Angel investors give businesses the chance to grow,
and if the businesses have exceeded the
start-up phase, these investors may then invest in a certain level of the businesses and
help them exceed the stage the business is
currently experiencing. The disadvantage
of having angel investors in your business is
that you may lose over 50% of your business.
According to Entrepreneur.com, your investors may decide that you are not creating a
success of the company and can eventually kick you out of your own business as they
have more shares.
These Angel investors would be able to invest in small start-up businesses, however
these small businesses would have to provide a detailed plan of their business to be
able to attract these Angel investors.
Private Equity Investors
These are third party investors also known
who come together with the hopes of investing into other businesses. These investors
prefer to fund big businesses, however they
invest into businesses on a long-term basis,
and small businesses have the channels to
use this as a means of funding as South Africa has small equity firms.
The South African government assists in funding disadvantaged South Africans to open
up businesses. The Department of Trade
and Industry and other industries such as the
South African Micro Finance Apex Fund and
the National Empowerment Fund are all created to assist with financial support.
Nedbank has a specialist division that deals
with small business enterprises. Firstly, the
small businesses need to be registered and
Nedbank considers a start-up business as a
company that has been running for over a
period of two years; only then can the business qualify to get start-up financing. The
reason for this is that the bank needs to be
able to assess the business in order to consider the loan; the period will be enough to
see how this business has grown and how
much income it has made in the two years.
One can however present contracts, future
contracts that highlight how much you will
be earning as a form of proof to the bankers
that you will be able to pay back the loan
and that your business is running successfully.
Projected finances such as a proper index
study in terms of providing income and the
expected capital or financial support needed, ensures a better chance in accessing
funding. “If you can show us that you are invested in your company, that will make us
feel comfortable and assured that we can
assist you in growing your company” (Nedbank).
First National Bank agrees with the conduct
of the other banks that the small business
needs to make a profit before it can acquire
funding from the bank. Funding a business
depends on how much the business already
makes. The less money made by a business,
the less money the business will receive.
Start-up businesses will not qualify to get this
business funding. Only existing businesses
qualify.
In essence, starting a business is not easy
and being financed or being invested in is
an extremely hard task. Start-up businesses
need to have a detailed structured proposal
that they can present to potential investors.
South African banks require that all start-up
businesses have at least 30% of the money
they require from the banks. A clean credit
record and collateral is required. If a start-up
business wants to approach investors, they
should make sure that these investors are interested in their craft in order to have a well
developing business.