THREE out of four new small South African businesses fail in the first year and the reason is financial.
Unfortunately, small businesses only attract attention if they survive and thrive without needing a loan.
On the other hand, there are many small businesses that display poor financial management, which pushes investors away.
Marilynn Leonard, co-founder of FundingHub, said: “Many small business owners don’t understand that they can only borrow a percentage of their turnover. No lender will advance a loan equal to their entire turnover.”
Alternative lenders not registered with the National Credit Regulator cannot lend money to businesses that don’t meet the one-year R1 million minimum requirement.
“Small businesses should look for an equity partner or personal finance.
“There’s been a rise in the numbers of alternative lenders in South Africa so it has become confusing, overwhelming and time-consuming to find the right one.”
But it’s also hazardous, with many mashonishas looking for quick and easy cash.
Research shows that about 40% of small businesses struggle to access funding because they don’t meet traditional lending criteria, which are not small business friendly.
Tips for lending success
Business owners need to have a good reason why they need the loan.
“Lenders won’t hand over money unless they know the purpose of the loan. Will it be used for expanding into new markets or paying salaries?
“Once the lender knows why the business needs funding, they can decide what amount they will lend them or how they will fund them,” Leonard said.
