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The Elusive Financial Assistance

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The Elusive Financial Assistance

by Kurt Carstens
03 May 2007

Small business owners are a solid piece of the back bone in our country and the access to successful loans are being breached by new and innovative ways to ensure the entrepreneurial spirit is kept alive. We are going to look at the various options available to you as an entrepreneur, and find out exactly where to go and on who's door do we go knocking.

Starting your own business can be challenging and rewarding, but man are you gonna have headaches!

Can you image an artist unable to create a masterpiece, because he ran out of paint?

Thats exactly what many a small business owner feels like when they cant get a project off the ground. They feel the same torment, pain, agony, complete sense of hopelessness that the artist feels , because they cannot create their "masterpiece".

But this is where we need to pick up the pieces and realise that we are creatures that can adapt to our circumstances, we can mould our project into the masterpiece it is meant to become by finding other resources.

In much the same way that artists today use materials such as wire, old cans, teabags or even sand to create their art, so too can the small business owner find other resources besides his usual bank, to fund the business he wants to build or expand.

We are going to look at the various options available to you as an entrepreneur, and find out exactly where to go and on who's door do we go knocking.

1. Mom and Dad and the rest of the family.

Dont be fooled, your Mom and Dad may not love you enough to offer your R50 000 to start your own snail farming export company in the middle of the Karoo, but probably are willing enough to give you R500 to see you get off the couch and invest in something other than your own gut for a change. Mom and Dad might want to see you succeed, but there are two things to remember: its not your money and you have a huge responsibility to ensure they dont cash in their pension fund to support your poorly-researched business idea; and secondly, whatever they do give you, is not a gift, its an investment in your future, so do the right thing and offer them shares in your company or draw up the appropriate document ( not an I.O.U.), to ensure you will repay them irrespective of the your business success or faliure. Include terms or repayment conditions and a start date.

When you aproach the rest of the family... strictly stick to a written agreement ( no handshake agreements or pinky swears ... only a written and signed document in duplicate will do). Trust me, dont test the boundaries of your family relationship ... wars have been fought over several continents for many years over money between families.

2. Your Boss

So you have been working for 15 years in the same compnay doing the same job. Are you skilled at what you do? Are you an expert in your field? Time to talk to the boss. A raise may be out of the question, but what can you do for the company that will save them a bundle right now?

Example: Your company employs 5 temporary staff and two permanent staff members to do debt collecting, but the company's core function is selling furniture on credit. Why not suggest the debt collecting function be outsourced to you. All you need is 3 PC's on loan from the company, make two of the temporay staff your full time employees, get the neccessary accreditation to act as a debt collector and like magic, the company has gotten rid of its temporary staff expense, the debt collecting headache is gone and the company can focus on sales. You on the other hand have set up a home office / garage office, have equipment on loan from the company, two permanent staff, and you as the expert. Debt collecting is now your core function and you are servicing the needs of your previous company. They are only too happy to strike you off their salary role, but you can easily manage on the payment you receive for every successful debt you recover.

In true entrepreneur style, you haven't asked for a cent from the boss, but have simply asked them to employ their resources in a different manner ( PC's, telephones, etc). But you've also managed to save them money, that they can now contribute towards more selling time and purchasing more stock. You are smiling because debt collecting is your core business, and you work 10 times harder and make more money in a business you could do with your eyes closed. This is a win-win scenario.

This is a very unconventional idea and requires a boss with vision, so dont try this if you're flipping burgers at a steak house ... they need you there for their business to be successful! A very out-the-box idea, but worth a try if you are a bookkeeper or even consultant for a small business. Insurance Brokers and some Management consultants, even IT consultants work form home all the time, operating their own office and using their company's laptops, cell phones etc. Forward thinking companies believe that people will work harder if they are allowed to work from home and earn their own paycheque, and will encourage and support them with the neccesary office equipment.

3. The Home bond and other financial instruments we are not suppossed to touch.

There's this really cool service centre I took my car to one day. Its very impressive, a full compliment of very competant staff and a really great experience overall. I had a chat with the owner and it appears that he started his business very unconventionally. Having made a success of his previous business, he started recieving credit card offers from every bank, furniture store and clothing store. He accepted every offer on his preapproved credit cards and ended up with a total of R85 000. He used this cash to start his business and to place a deposit on equipment that would gereate additional income streams, example, wheel balancing service, stock for mag wheels and alarm and radio fitment centre. He has even accredited his business to fit tracking devices for a leading security tracking company.

I am not endorsing the use of your credit card to fund your enterprise, however, what should be noted is the ingenuity of this business owner.

In the same way the business owner found a different resource to a business loan from the traditional bank loan, property owners may want to weigh up the cost of borrowing from a bank and using their existing bond as a source of finance. Your own home bond is perhaps the easiest form of borrowing available to you.

i ) Usually no additional paperwork needs to be done to qualify for the amount you wish to borrow, especially where you have a flexible bond - meaning you've been pre approved to used the available equity in your bond.
ii) The borrowing rate of interest is far lower than the usual bank rates for business loans.
iii) No additional security will be required.
iv) Additional Risk insurance for borrowing is usually in place already.
v) And for those who say mixing your personal and business finances are not clever or bad advice, I would say correct!, however for those who have borrowed in terms of business lending, have you read very carefully , the banks documents for business loans, It places you as the borower in a very precarious position, read your documents carefully and I can almost guarantee that you have authorised an "unlimited surety" document , somewhere along the way. Which by virtue of the document, mixes personal and business finances.
vi) In every aspect of borrowing we have to weigh up the effect on our cashflow and therefore it is important to determine the lowest cost associated with a specific type of of borrowing with the least negative effect on cash flow. You also have to determine you repayment period. For example, using a R20 000 borrowing from your bond to purchase a fancy photocopier for your business is ludercris if you are determined to pay it back over 20 years. Always weigh up the purchase Vs the repayment period. Use common sense to determine that the fancy copier must be repaid within 12 to 24 months and not 240 months.

Other forms of borrowing include, Investments, whether fixed or unit trusts or endowment policies, they can all be used as security when borrowing at the bank. However, these investments may also be redeemed directly. Its a painful exercise for me to recommend you redeem your unit trusts or withdraw against your investment policy, but depending on your commitment and vested interest in getting the project completed, this may be a viable option for you, although again, this option is certainly not favourable with me.

4. Venture Capitalists (VC)

In a nutshell, You have a good idea, but no capital, so you approach a Venture Capitalist (VC), they make the decision to borrow you the money, but, they are actually purchasing a share of your business. In other words, you request a million rands worth of funding, they agree to borrow you the money for 51% ownership of the business. You finally launch your product or service, with the assistance of your new partner, the VC. You have to weigh up the cost of not going this route and never getting your business off the ground, or accept the funding and earn a percentage of the total profits, and possibily lose the controlling stake in your business.

Personally, I would rather have 49% of a profitable business, than 100% of nothing. If you place sentimentality on the ownership of your business ... dont go this route. Money wont make a difference to you.

5. Government Programmes

This is the section I love talking about most. Its the section that usually opens your eyes. If you are not an avid reader of business magazines and / or internet savvy, chances are this is the first time that you are reading about these options.

i) Red Door - Premises located at Mitchells' Plain and Khayelitsha . Simply walk in, Speak to the consultant about your business idea or bring along your proposal. The consultant will make recommendations and advise who to speak to regarding the readiness and viability of your business plan. Finance options will be discussed, based on your needs. They are not a borrowing institution, but more of a support team for your business venture. It becomes a less stressful exercise when you have people in your corner who are knowledgeable and are providing you with the tools to make your business loan application a success.

Red Door - Mitchells Plain :

Shop no. C-03, The Promenade
c/o: AZ Berman and Morgenster Roads
Mitchell's Plain, Cape Town

Telephone: 021 376 2377 / 021 376 2387 / 021 376 2404
Hours: Mondays - Friday: 10:00 to 16:30 and Saturdays: 10:00 to 13:00

Red Door - Khayelitsha

Shop no. 22
Makaza Shoprite Centre
C/o Lansdowne and Celeka Streets
Khayelitsha, Cape Town

Telephone : 021 362 6621 / 021 362 6624 / 021 362 6625
Hours: Mondays - Friday: 10:00 to 16:30 and Saturdays: 10:00 to 13:00

ii ) Usombumvu Youth Fund - A national government project to create opportunities for youth employment and youth entrepreneurship. Business Development Support Vouchers enable clients to buy business support services from approved service providers.

Western Cape - Provincial Office
Telephone: (021)465 8293
Fax: (086)603 0550
Physical Address: Main House No.1 Harrington Street Cape Town 8000

Cape Town Youth Advisory Centre
Telephone: (021)425 2400
Fax: (021)425 6353
Physical Address: 5th floor, No 7 Anton Anreith Arcade Foreshore Cape Town 8001

iii) Small Enterprise Development Agency (SEDA) - A project of the national Department of Trade and Industry to support small businesses. They offer comprehensive support and advice on all aspects of running a business, and provide links to finance providers

National Call Centre: 0860 103703

iv) Cape IT Initiative CITI is a regional trade association, networking body and a promotion agency for the ICT industry.
It runs a number of mentoring and support projects for small IT companies.

Bandwidth Barn, 125 Buitengracht St, Cape Town
Telephone : 021 409 7000

v) Business Beat - Helps entrepreneurs to identify viable business opportunities and develop their business skills.

50 Lower Main Rd, Observatory, Cape Town
Telephone : 021 448 9075

vi) Zenzele - Trains unemployed people in welding, woodwork, sewing, catering and tourism. It helps graduates to form co-operatives, and also provides business development and incubation services.

New Crossroads and Khayelitsha, Cape Town
Telephone : 021 361 1840

vii) National Empowerment Fund - Want to buy-out the company you've been working in for the past 20 years? Is your black-owned business ready to take over as Market industry leaders, but lack the financial backing, speak to the consultants at the National Empowerment fund. From Small business to Corporate shifts in ownership and control, their aim is to grow black economic participation.

Telephone : 011 305 8000

viii) Tourism Helpdesk for Entrepreneurs - The Tourism Help Desk Programme was initiated to provide assistance to tourism entrepreneurs. Each Tourism Help Desk (THD) actively identifies opportunities and entrepreneurs to kick-start the growth of tourism SMMEs, especially in rural areas.

The following assistance is provided:
A directory is maintained of support agencies, business opportunities, financing opportunities and a panel of mentors that entrepreneurs can draw from.
Joint ventures are facilitated.
Assistance is given with drawing up business plans.
Bookkeeping advice is available.
General and specific and information on the tourism industry is distributed.
SMME workshops are hosted, facilitated by tourism, entrepreneurship and marketing experts, to help tourism entrepreneurs develop their businesses further

Tel: 021 483 4165
Fax: 021 483 3018

ix) Khula Enterprise Finance Limited - Khula Enterprise Finance Limited is an agency of the Department of Trade and Industry (dti) established in 1996 to facilitate access to finance for SMMEs. Khula provides assistance through various delivery channels.These include commercial banks, retail financial intermediaries (RFIs) and micro credit outlets (MCOs). Through its Thuso Mentorship Programme, Khula also provides mentorship services to guide and counsel entrepreneurs in various aspects of managing their businesses.

Provincial Offices:

Tel: (021)905 6237
Fax: (021)905 6238

Cape Town
Tel: (021) 671 9056/7
Fax: (021) 671 9228

x) Thuso Mentorship Programme - The Programme aims to ensure the transfer of skills on a one-to-one basis. It offers pre-loan ad post-loan services. During the pre-loan service, clients are assisted with advice, counselling and development of viable business plans.

Western Cape (021) 671 9056/9057

There are several other finance opportunities offered through governemt schemes and development programmes. Several corporates offer supplier development programmes to ensure that small businesses are afforded the same opportunities to tender and supply big companies. Woman and the disabled have special focus groups which aim to assist them in their quest for finance.

We also have the gorvernment Apex fund, funding for Agriculture, funding for technology, tourism and land development. Big Projects from one million rand and up, may find an opportunity with the Industrial development corporation (IDC)

The options remain endless, We even have companies like Business Partners teaming up with the Usombomvu fund to create a specialist form of financing with its own requirements or even the Momentum Usombomvu Youth fund. Even further options are available to Franchise start ups or for BBBEE based companies.

The important lesson to take away from here, is not to give up, when you think you've exhausted all avenues. Sweat Equity counts in your favour, just as much as financial collateral, if you can show that you've done the homework, more people will be willing to assist you.

Small business owners are a solid piece of the back bone in our country and the access to successful loans are being breached by new and innovative ways to ensure the entrepreneural spirit is kept alive.

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